Pound’s bullish recovery curtailed by BoE negative rate speculation

The pound was forced to reverse some of its recent gains on Thursday, after a dovish Bank of England (BoE) dropped more hints regarding the possibility of negative interest rates.

Sterling appears to be consolidating these losses this morning, with GBP/EUR muted at €1.0938 and GBP/USD flat at $1.2982. GBP/CAD and GBP/AUD are rangebound at C$1.7066 and AU$1.7721, respectively, while GBP/NZD retreats to NZ$1.9095.

In the spotlight today will be the UK’s latest retail sales figures. But will it be enough to offset talk of a second national lockdown?

What’s been happening?

After three days of consecutive gains, the pound was back on the defensive yesterday following the Bank of England’s latest rate decision.

The BoE opted to keep its monetary policy unchanged this month as had been expected, while warning that rising coronavirus cases and Brexit uncertainty pose a threat to the UK’s economic recovery.

However, the news that the bank’s monetary policy committee was briefed on how negative interest rates might be introduced fuelled the sell-off, as it was the BoE’s strongest hint yet that negative interest rates could be on the table.

The euro, meanwhile, struggled to find support on Thursday after the WHO warned over the 'alarming' rise of coronavirus cases in Europe as the continent saw a record increase in cases last week.

The US dollar was also left rangebound yesterday as a smaller-than-expected fall in US initial jobless claims last week dampened hopes for the US economic recovery.

What’s coming up?

Kicking off today’s trading session we have the publication of the UK’s latest retail sales.

While this morning’s figures showed that sales grew by another 0.8% last month, helping propel sales growth even higher than pre-pandemic levels, any upside in the pound looks limited in response to reports the UK government is considering new nationwide coronavirus restrictions.

Across the channel, in the absence of any notable EUR data releases thefocus will be speeches by the European Central Bank’s (ECB) Luis de Guindos and Isabel Schnabel, with EUR investors looking for any fresh insight into the bank’s future policy plans.

Closing out the session will be Michigan University’s latest US consumer sentiment index. Will another improvement in household sentiment this month help to bolster the appeal of the US dollar?