GBP - British Pound
The BoE meet ended up fairly underwhelming as the MPC decided it best to raise the current QE envelope by 100bn. They key decisions moving forward were:
1. QE increased by £100 billion as expected
2. Pace of QE purchases to see buying extend to end of the year (tapering)
3. No mention of negative rates in discussions
The BoE have clearly decided the ‘easy does it’ approach is best as they pledge to monitor the current QE package. The pound initially reacted well to the news however this was short lived as the pound then slipped by nearly 1% against the USD and EUR. It seems investors are unhappy with the current managing of the UK economy and suggests they think that more stimulus would, in the case, be a better option. Bailey is still opened to the idea of negative interest rates however specifically mentioned that they were not spoken about at yesterday’s meet.
In other news finally some good fundamental data for the UK, as retail sales come in at 12%, 30% better than May’s reading. This is exactly the sort of data that Sunak will be delighted with, as he achieves instant results after loosening the lockdown rules around UK retail.
Global concern over a second wave in China, global political tensions and a worry around a soaring number of cases in the US has left investors flocking back to safe haven assets. Individuals are certainly looking to jump the gun by jumping into risker assets, however it’s a tricky position considering the number of moving parts in the market. The USD and JPY strengthened on the back of the swing in risk. Once again, the market has paid little attention to data which has given mixed signals in the US, and has focussed on the wider global picture.
Focus today lies with the European Union as the EU summit has kicked off. The EUR has slipped against a number of it’s major peers this week as the bloc aim to find a clear and fair way of distributing their 750bn coronavirus relief fund. Austria, Sweden, Denmark and the Netherlands all oppose the current plan set out and will look to argue a deal that supports more of their populations. The EUR will likely fluctuate heavily over the next few market sessions, as leaks and news from the summit keep the currency on it’s toes.