GBP - British Pound
Investors are fixated on the BoE meeting on Thursday afternoon, as the MPC determine how best to manage the UK's monetary policy against the last 3 months of economic contraction. Chances are, the MPC won’t vote in favour to cut interest rates to negative for the first time in UK history, but it seems a change to the asset purchasing programme is incredibly likely. Bailey has already labelled it ‘foolish’ to rule out a negative rate cut, however it seems like he’d rather have that option as a doomsday device, rather than policy of choice. Rumours have suggested that the BoE are looking to increase the current asset purchasing programme by either £100bn or £200bn. It is important that the MPC vote correctly on this policy, as if they overestimate the level of QE required, it may lead to unwanted inflation during a time of consumer saving. Whatever the vote, the pound will inevitably have a busy day and we expect to see a large surge or slip in the pound, followed by a sudden retrace.
There may have been a slight shift in risk sentiment on Wednesday, as safe haven currencies like the Swiss Franc and Japanese Yen hold firm and more risky assets such as the pound and Aussie Dollar slipped. Many are using the Chinese coronavirus case study as a way of predicting how other nations will be affected in the short term, due to the fact they are the ‘furthest ahead’ on the infection curve. Worryingly, there has been an uptick in the number of reported cases in Beijing, as China reimplement lockdown measures in the capital.
With the first wave causing a global economic slowdown and mass global unemployment, the talk of a second wave has obviously sent shivers down the spine of investors. With New Zealand most recently declaring themselves ‘Covid-19 free’, they will be extremely cautious so as not to undo the last 3 months of hard work. Chances are, non-safe haven assets will remain subdued for a week or two, until there is further clarity around the problem in China and whether the containment period worked.