BoE comments on negative rates weaken GBP
Philip McHugh May 19th 2020 - 2 minute read

Comments from Bank of England (BoE) Chief Economist Andy Haldane put fresh pressure on the pound at the start of the week.
However, Sterling has recovered some lost ground this morning, with GBP/EUR edging up to €1.1190 and GBP/USD climbing to $1.2239. GBP/CAD has risen to C$1.7045, but GBP/AUD and GBP/NZD have drifted lower, hitting AU$1.8693 and NZ$2.0137 respectively.
The UK published its latest employment figures this morning – what impact has the data had so far?
What’s been happening?
Yesterday BoE Chief Economist Andy Haldane indicated that the BoE is examining the possibility of negative interest rates.
He asserted: ‘The economy is weaker than a year ago… so in that sense it’s something we’ll need to look at – are looking at – with somewhat greater immediacy.’
The remarks left GBP exchange rates on the back foot at the start of a heavy data week.
Meanwhile, the euro also came under pressure yesterday as the Bundesbank highlighted the risk of the German economy experiencing an even deeper contraction in the second quarter.
However, EUR exchange rates derived some support from weakness in the US dollar as a general improvement in risk appetite drove investors away from the safe-haven currency.
Federal Reserve Chair Jerome Powell also undermined demand for USD exchange rates as he insisted that the central bank has further ammo to support the US economy.
What’s coming up?
This morning’s UK employment data revealed that unemployment rose to 1.35 million in the first three months of 2020 thanks to the coronavirus crisis. Hours of work also fell dramatically.
The Office for National Statistics stated: ‘While only covering the first weeks of restrictions, our figures show Covid-19 is having a major impact on the labour market. In March employment held up well, as furloughed workers still count as employed, but hours worked fell sharply in late March, especially in sectors such as hospitality and construction’
Average earnings both including and excluding bonuses also declined during the period. As the jump in joblessness was expected given the circumstances, the report has had little impact on the pound so far.
EUR exchange rates could find a rallying point this morning if May’s German ZEW economic sentiment index picks up as anticipated.
A solid uptick from 28.2 to 32 on the month may help encourage hopes that the Eurozone’s powerhouse economy is on course to recover some of its lost momentum in the coming months.
On the other hand, if confidence fails to pick up on the month this could leave the euro exposed to further selling pressure.
The US dollar may remain on a weaker footing this afternoon if US building permits decline as expected and risk appetite remains elevated.
Written by
Philip McHugh