Why did the British pound rise so sharply? The Bank of England abandons the idea of ​​negative interest rates. Euro is experiencing growth problems



The British pound continued its growth on Tuesday after the news that the Bank of England may abandon plans to introduce negative interest rates and is ready to cut borrowing costs by the end of the year.

Traders have taken a close look at statements by the Governor of the Bank of England, Andrew Bailey, that negative interest rates are quite problematic and an unacceptable tool for the central bank. After that, the British pound rose more than 100 pips from the day’s opening level. Against this background, the yield on ten-year government bonds rose by three basis points to 0.34%.

According to Reuters, Andrew Bailey dispelled rumors that interest rates could be cut below 0% as early as next month. In this regard, many investors are starting to revise their portfolios with the expectation of further strengthening the British pound immediately after the problems with the new strain of coronavirus are resolved and the strict quarantine measures are lifted.

Until now, a number of economists had expected that the Bank of England could introduce negative interest rates already during its February meeting this year. In the immediate aftermath of the Brexit deal, many traders have now begun to pay more attention to the prospects for the recovery of the UK economy, which is in a state of total paralysis due to the continuing dew of coronavirus infections. However, not everyone at the central bank agrees with Andrew Bailey, who said in an interview that the economy is going through a difficult period. For example, Deputy Governor Ben Broadbent thinks very differently. However, we will return to it a little below.

Given that the Bank of England, which is now likely to keep interest rates unchanged, could change its monetary policy stance by cutting its asset repurchase program at the end of the year. After that, the road for the British pound buyers to new highs will be open.

Let me remind you that the European Central Bank resorted to measures to introduce a negative interest rate on deposits quite a long time ago, which now maintains it at -0.5%. However, the economists of the central bank of England have concerns about the preservation of the stability and profitability of the UK banking sector in the event that the regulator resorts to this method.

As I noted above, Ben Broadbent, Deputy Governor of the Bank of England, said today that the coronavirus pandemic is putting less pressure on inflation than anticipated, which also cheered up buyers of the British pound. Broadbent noted that the implications for price pressures over the medium term – and therefore for monetary policy – are likely to be limited. Broadbent also drew attention to the fact that the pandemic did not exert such serious pressure on inflation as previously expected. Despite this, in order to count on a steady return of inflation to the target of about 2.0%, the central bank will need to maintain the asset repurchase program and low interest rates at current levels for a rather long period. The Deputy Governor also noted that GDP is likely to fall in the 4th quarter of 2020 and also in the 1st quarter of 2021.

I spoke about a similar situation in the European economy this morning. The continued recession in 2021 will also be directly related to the sharp economic slowdown at the end of 2020. Even if the fall in eurozone GDP is less severe than economists expect, it will still increase pressure on indebted governments and the European Central Bank, which must be proactive. And this is another reason why the European currency will remain under pressure.

As for the technical picture of the pair GBPUSD, then a breakout of resistance in the area of ​​the 36th figure will certainly lead to a reversal of the downtrend formed at the beginning of this year and to a new, larger wave of growth of the trading instrument to highs to 1.3660 and to the 37th figure. It will be possible to talk about pressure if the bears manage to cope with the activity of buyers in the area of ​​1.3601, it will be possible only after GBPUSD drops below 1.3530. In this case, we can expect a return to 1.3450 and 1.3370.

Now, as for the numbers, which were not so many in the morning today. A report by the Istat Bureau of Statistics indicated that Italian retail sales continued to decline at the fastest pace in seven months. This happened against the background of weak demand for non-food products due to the coronavirus pandemic. According to the data, retail sales fell immediately by 6.9% in November, after growing by 0.5% in October 2020. It was the biggest drop since April 2020, when sales dropped by 10.1% at once. A 1% growth in food sales was offset by a sharp 13.2% decline in non-food sales. On an annualized basis, retail sales were down 8.1% from the same period in 2019.

The Small Business Optimization Report in the US was ignored by traders. Optimism has fallen sharply, according to the data, due to the rise in Covid-19 late last year, as well as a record number of infections, leading to tightening of work and imposing restrictions on many companies. According to the report, the index of sentiment of the national federation of independent business dropped immediately by 5.5 points to 95.9 points, while economists had expected this figure to be 100.2 points. The renewed isolation measures continued to put pressure on business activity, leading to higher expectations for reduced sales. The owners’ assessment of the conditions for doing business dropped to the level of April 2016.

The NFIB noted that the American economy entered 2021 with exactly the same problems that it faced in 2020.

As for the technical picture of the pair EURUSD, then it remained unchanged compared to the morning forecast. The bulls will be able to level the situation, or at least stop the fall of the euro only after they regain control of the resistance at 1.2180. Only a break of this range would provide a larger upside movement towards the 1.2225 and 1.2290 highs. If the sellers of risky assets turn out to be stronger and break through the minimum of 1.2130, then most likely the pressure on the trading instrument will only increase, which will open a direct path to the areas of 1.2080 and 1.2040.


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The British pound continued its growth on Tuesday after the news that the Bank of England may abandon plans to introduce negative interest rates and is ready to cut borrowing costs by the end of the year.

Traders have taken a close look at statements by the Governor of the Bank of England, Andrew Bailey, that negative interest rates are quite problematic and an unacceptable tool for the central bank. After that, the British pound rose more than 100 pips from the day’s opening level. Against this background, the yield on ten-year government bonds rose by three basis points to 0.34%.

According to Reuters, Andrew Bailey dispelled rumors that interest rates could be cut below 0% as early as next month. In this regard, many investors are starting to revise their portfolios with the expectation of further strengthening the British pound immediately after the problems with the new strain of coronavirus are resolved and the strict quarantine measures are lifted.

Until now, a number of economists had expected that the Bank of England could introduce negative interest rates already during its February meeting this year. In the immediate aftermath of the Brexit deal, many traders have now begun to pay more attention to the prospects for the recovery of the UK economy, which is in a state of total paralysis due to the continuing dew of coronavirus infections. However, not everyone at the central bank agrees with Andrew Bailey, who said in an interview that the economy is going through a difficult period. For example, Deputy Governor Ben Broadbent thinks very differently. However, we will return to it a little below.

Given that the Bank of England, which is now likely to keep interest rates unchanged, could change its monetary policy stance by cutting its asset repurchase program at the end of the year. After that, the road for the British pound buyers to new highs will be open.

Let me remind you that the European Central Bank resorted to measures to introduce a negative interest rate on deposits quite a long time ago, which now maintains it at -0.5%. However, the economists of the central bank of England have concerns about the preservation of the stability and profitability of the UK banking sector in the event that the regulator resorts to this method.

As I noted above, Ben Broadbent, Deputy Governor of the Bank of England, said today that the coronavirus pandemic is putting less pressure on inflation than anticipated, which also cheered up buyers of the British pound. Broadbent noted that the implications for price pressures over the medium term – and therefore for monetary policy – are likely to be limited. Broadbent also drew attention to the fact that the pandemic did not exert such serious pressure on inflation as previously expected. Despite this, in order to count on a steady return of inflation to the target of about 2.0%, the central bank will need to maintain the asset repurchase program and low interest rates at current levels for a rather long period. The Deputy Governor also noted that GDP is likely to fall in the 4th quarter of 2020 and also in the 1st quarter of 2021.

I spoke about a similar situation in the European economy this morning. The continued recession in 2021 will also be directly related to the sharp economic slowdown at the end of 2020. Even if the fall in eurozone GDP is less severe than economists expect, it will still increase pressure on indebted governments and the European Central Bank, which must be proactive. And this is another reason why the European currency will remain under pressure.

As for the technical picture of the pair GBPUSD, then a breakout of resistance in the area of ​​the 36th figure will certainly lead to a reversal of the downtrend formed at the beginning of this year and to a new, larger wave of growth of the trading instrument to highs to 1.3660 and to the 37th figure. It will be possible to talk about pressure if the bears manage to cope with the activity of buyers in the area of ​​1.3601, it will be possible only after GBPUSD drops below 1.3530. In this case, we can expect a return to 1.3450 and 1.3370.

Now, as for the numbers, which were not so many in the morning today. A report by the Istat Bureau of Statistics indicated that Italian retail sales continued to decline at the fastest pace in seven months. This happened against the background of weak demand for non-food products due to the coronavirus pandemic. According to the data, retail sales fell immediately by 6.9% in November, after growing by 0.5% in October 2020. It was the biggest drop since April 2020, when sales dropped by 10.1% at once. A 1% growth in food sales was offset by a sharp 13.2% decline in non-food sales. On an annualized basis, retail sales were down 8.1% from the same period in 2019.

The Small Business Optimization Report in the US was ignored by traders. Optimism has fallen sharply, according to the data, due to the rise in Covid-19 late last year, as well as a record number of infections, leading to tightening of work and imposing restrictions on many companies. According to the report, the index of sentiment of the national federation of independent business dropped immediately by 5.5 points to 95.9 points, while economists had expected this figure to be 100.2 points. The renewed isolation measures continued to put pressure on business activity, leading to higher expectations for reduced sales. The owners’ assessment of the conditions for doing business dropped to the level of April 2016.

The NFIB noted that the American economy entered 2021 with exactly the same problems that it faced in 2020.

As for the technical picture of the pair EURUSD, then it remained unchanged compared to the morning forecast. The bulls will be able to level the situation, or at least stop the fall of the euro only after they regain control of the resistance at 1.2180. Only a break of this range would provide a larger upside movement towards the 1.2225 and 1.2290 highs. If the sellers of risky assets turn out to be stronger and break through the minimum of 1.2130, then most likely the pressure on the trading instrument will only increase, which will open a direct path to the areas of 1.2080 and 1.2040.


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The British pound continued its growth on Tuesday after the news that the Bank of England may abandon plans to introduce negative interest rates and is ready to cut borrowing costs by the end of the year.

Traders have taken a close look at statements by the Governor of the Bank of England, Andrew Bailey, that negative interest rates are quite problematic and an unacceptable tool for the central bank. After that, the British pound rose more than 100 pips from the day’s opening level. Against this background, the yield on ten-year government bonds rose by three basis points to 0.34%.

According to Reuters, Andrew Bailey dispelled rumors that interest rates could be cut below 0% as early as next month. In this regard, many investors are starting to revise their portfolios with the expectation of further strengthening the British pound immediately after the problems with the new strain of coronavirus are resolved and the strict quarantine measures are lifted.

Until now, a number of economists had expected that the Bank of England could introduce negative interest rates already during its February meeting this year. In the immediate aftermath of the Brexit deal, many traders have now begun to pay more attention to the prospects for the recovery of the UK economy, which is in a state of total paralysis due to the continuing dew of coronavirus infections. However, not everyone at the central bank agrees with Andrew Bailey, who said in an interview that the economy is going through a difficult period. For example, Deputy Governor Ben Broadbent thinks very differently. However, we will return to it a little below.

Given that the Bank of England, which is now likely to keep interest rates unchanged, could change its monetary policy stance by cutting its asset repurchase program at the end of the year. After that, the road for the British pound buyers to new highs will be open.

Let me remind you that the European Central Bank resorted to measures to introduce a negative interest rate on deposits quite a long time ago, which now maintains it at -0.5%. However, the economists of the central bank of England have concerns about the preservation of the stability and profitability of the UK banking sector in the event that the regulator resorts to this method.

As I noted above, Ben Broadbent, Deputy Governor of the Bank of England, said today that the coronavirus pandemic is putting less pressure on inflation than anticipated, which also cheered up buyers of the British pound. Broadbent noted that the implications for price pressures over the medium term – and therefore for monetary policy – are likely to be limited. Broadbent also drew attention to the fact that the pandemic did not exert such serious pressure on inflation as previously expected. Despite this, in order to count on a steady return of inflation to the target of about 2.0%, the central bank will need to maintain the asset repurchase program and low interest rates at current levels for a rather long period. The Deputy Governor also noted that GDP is likely to fall in the 4th quarter of 2020 and also in the 1st quarter of 2021.

I spoke about a similar situation in the European economy this morning. The continued recession in 2021 will also be directly related to the sharp economic slowdown at the end of 2020. Even if the fall in eurozone GDP is less severe than economists expect, it will still increase pressure on indebted governments and the European Central Bank, which must be proactive. And this is another reason why the European currency will remain under pressure.

As for the technical picture of the pair GBPUSD, then a breakout of resistance in the area of ​​the 36th figure will certainly lead to a reversal of the downtrend formed at the beginning of this year and to a new, larger wave of growth of the trading instrument to highs to 1.3660 and to the 37th figure. It will be possible to talk about pressure if the bears manage to cope with the activity of buyers in the area of ​​1.3601, it will be possible only after GBPUSD drops below 1.3530. In this case, we can expect a return to 1.3450 and 1.3370.

Now, as for the numbers, which were not so many in the morning today. A report by the Istat Bureau of Statistics indicated that Italian retail sales continued to decline at the fastest pace in seven months. This happened against the background of weak demand for non-food products due to the coronavirus pandemic. According to the data, retail sales fell immediately by 6.9% in November, after growing by 0.5% in October 2020. It was the biggest drop since April 2020, when sales dropped by 10.1% at once. A 1% growth in food sales was offset by a sharp 13.2% decline in non-food sales. On an annualized basis, retail sales were down 8.1% from the same period in 2019.

The Small Business Optimization Report in the US was ignored by traders. Optimism has fallen sharply, according to the data, due to the rise in Covid-19 late last year, as well as a record number of infections, leading to tightening of work and imposing restrictions on many companies. According to the report, the index of sentiment of the national federation of independent business dropped immediately by 5.5 points to 95.9 points, while economists had expected this figure to be 100.2 points. The renewed isolation measures continued to put pressure on business activity, leading to higher expectations for reduced sales. The owners’ assessment of the conditions for doing business dropped to the level of April 2016.

The NFIB noted that the American economy entered 2021 with exactly the same problems that it faced in 2020.

As for the technical picture of the pair EURUSD, then it remained unchanged compared to the morning forecast. The bulls will be able to level the situation, or at least stop the fall of the euro only after they regain control of the resistance at 1.2180. Only a break of this range would provide a larger upside movement towards the 1.2225 and 1.2290 highs. If the sellers of risky assets turn out to be stronger and break through the minimum of 1.2130, then most likely the pressure on the trading instrument will only increase, which will open a direct path to the areas of 1.2080 and 1.2040.





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