Pound rangebound ahead of BoE, is the bank ready to pursue more unorthodox policy?

Philip McHugh June 18th 2020 - 2 minute read

The pound ticked lower on Wednesday after UK inflation was shown to have slowed to a new four-year low last month.

Meanwhile, Sterling appears to be rangebound so far this morning, with GBP/EUR subdued at €1.1144 and GBP/USD flat at $1.2538. GBP/CAD is muted at C$1.6999, while GBP/AUD and GBP/NZD hold steady at AU$1.8257 and NZ$1.9460 respectively.

The spotlight will be on the Bank of England (BoE) today as it delivers its latest rate decision. 

What’s been happening?

The pound fell back yesterday in response to the UK’s latest consumer price index.

According to data published by the Office for National Statistics (ONS), UK inflation slowed from 0.8% to 0.5% in May, its lowest levels since June 2016.

This left GBP investors extremely reluctant to place any bullish bets on Sterling ahead of the BoE’s upcoming rate decision.

The euro also retreated on Wednesday, with investors steering clear of the single currency after European Central Bank (ECB) Vice President Luis de Guindos suggested the EU coronavirus recovery fund should be distributed to countries in a weaker fiscal position via grants rather than loans.

Meanwhile the US dollar found itself back in demand yesterday amid rising tensions in Asia.

Tensions flared following clashes on the border between India and China earlier in the week, which left at least 20 Indian soldiers dead and prompted Indian Prime Minister Narendra Modi to warn their deaths ‘will not be in vain’.

What’s coming up?

Today’s big news is the Bank of England’s latest rate decision, with the BoE poised to expand its quantitative easing programme.

However, the real focus may be on the BoE’s stance on unconventional monetary policy, with any mention of negative interest rates likely to weigh on the pound.

USD investors will be looking out for last week’s initial jobless claims report, with another notable increase in unemployment claims potentially putting some pressure on the US dollar later this afternoon.

Finally, in the absence of any Eurozone data of note, movement in the euro is likely to be dictated by market sentiment.

Written by
Philip McHugh

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