GBP/USD needs more QE and less talk of sub-zero borrowing costs to rise

GBP/USD has hit the highest since March amid a massive dollar sell-off and the cable has stabilized under 1.31 after experiencing high volatility. An updated view on the US labor market via the all-important Non-Farm Payrolls, the Bank of England’s rate decision and coronavirus-related news stand out in the upcoming week. FXStreet’s analyst Yohay Elam reports.

Key quotes

“Brexit breakthrough or breakdown of talks? None of the above, most probably. Reports suggest that both the EU and the UK are unlikely to move – nor abandon negotiations – during the summer. Any unlikely development would rock the pound.” 

“The UK’s gradual exit from COVID-19-related restrictions is set to continue, but any flareups – as seen elsewhere – may weigh on sterling.” 

“The BoE is set to leave its interest rate unchanged at 0.1% and the Quantitative Easing program at £745 billion. The focus will be on what makes it ‘super’ – the Monetary Policy Report. Investors prefer any BoE help that would lower the government’s borrowing costs and support the recovery. With inflation out of sight, any distancing between the bank and the state would be seen unfavorably and could hurt the pound. Apart from additional QE, investors will want to know where the BoE stands on negative interest rates. If any of his colleagues vote for a rate cut – or if Bailey hints that option is on the cards – sterling could suffer.”

“Is the coronavirus curve flattening? Cases have stopped rising, but deaths are on a worrying uptrend. If the statistics worsen, that would adverse for markets – but could also push lawmakers in Washington to strike a deal and provide more help to the struggling economy. Both sides want to be seen as helping the public in an election year.” 

“The NFP report can go either way – a third consecutive month of job growth or a downturn. The chance of repeating June’s 4.8 million increase is meager. The same goes for the unemployment rate, which dropped to 11.1 in the previous month and may now move up. The high level of uncertainty about July’s figures – the first full month after COVID-19 raised its head in mid-June – implies a strong reaction in markets.”