News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bullish
Oil - US Crude
Bearish
Wall Street
Mixed
Gold
Mixed
GBP/USD
Mixed
USD/JPY
Bullish
More View more
Real Time News
  • Implementing a trading checklist is a vital part of the trading process because it helps traders to stay disciplined, stick to the trading plan, and builds confidence. Learn how to stick to the plan, stay disciplined, and use a checklist here: https://t.co/SQUCCZ9dzS https://t.co/KD6mfkiCaW
  • What are some technical and fundamental factors affecting the equities market? Get your free forecast here: https://t.co/YQG1aaIT8C #DailyFXGuides https://t.co/TEoSjMpMBo
  • Use this technical analysis pattern recognition skills test to sharpen your knowledge: https://t.co/Qgz89PTxnu https://t.co/H9fW9ewiQd
  • Get your snapshot update of the of market open and closing times for each major trading hub around the globe here: https://t.co/BgZLFljIhZ https://t.co/yLt0ldtMsV
  • What suits your style of trading stocks or commodities? Find out what are the differences in these two markets here: https://t.co/BnA07cMV0s https://t.co/ZwwuTzTeac
  • What's the difference between leading and lagging indicators? Find out from here: https://t.co/vGx8HCagF5 https://t.co/4DGXwA8vqs
  • Struggling to define key levels? Floor-Trader Pivots assist traders in identifying areas in a chart where price is likely to approach and can be used to set appropriate targets, while effectively managing risk. Learn how to use this indicator here: https://t.co/Ye4m1FMKUW https://t.co/mAMhWbV6Jy
  • Make smart trading decisions with your free guide to trade the news. Download your free guide here.https://t.co/pb5E2KgRzW #DailyFXGuides https://t.co/E9ZmJvqO0z
  • Currency exchange rates are impacted by several factors. Are different world leaders a contributing factor? Find out here: https://t.co/4jsORznRTE https://t.co/fqxw1AoKc1
  • Gold snapped a two-week losing streak but keeps price within the broader August downtrend. These are the levels that matter on the $XAUUSD weekly chart. Get your market update from @MBForex here: https://t.co/B3Jct6mIBD https://t.co/xTGIM2hRBv
FTSE 100 vs FTSE 250: What Outperforms When Bank of England Cuts Rates

FTSE 100 vs FTSE 250: What Outperforms When Bank of England Cuts Rates

Justin McQueen, Analyst

FTSE 100, FTSE 250 Price Analysis & News

  • Bank of England Delivers Shock Rate Cut to Combat Coronavirus
  • FTSE 100 Benefits from BoE Easing, However, Emergency Pose Greater Downside Risks
  • FTSE 250 Has Outperformed the FTSE 100 When the BoE Eases

The Bank of England delivered an emergency rate cut of 50bps to a record low of 0.25%. This had also been only the third time in the central bank’s history to have cut interest rates at an unscheduled meeting. Prior times being on 18th September 2001 and 8th October 2008. Much like central banks across the globe (Fed, BoC, RBA), the decision to cut interest rates had been to combat the uncertainty and expected economic shock from the spread of the coronavirus, which has significantly weighed on risk appetite. This article looks at the impact that easing monetary policy from the Bank of England (including emergency rate cuts) have typically had on both the FTSE 100 and FTSE 250.

Equities Forecast
Equities Forecast
Recommended by Justin McQueen
Download our fresh Q1Equities Forecast
Get My Guide

FTSE 100 Benefits from BoE Easing, However, Emergency Pose Greater Downside Risks

The FTSE 100 has typically fared relatively well when the Bank of England eases monetary policy in the longer run, with the exception of the global financial crisis in 2008 and the tech bubble burst in the early 2000s. That said, when an emergency rate cut had been issued, the FTSE 100 tends to underperform in the near term, as such, with the spread of the coronavirus likely to get worse before it gets better, risks will continue to remain tilted to the downside.

FTSE 100 MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -5% -4% -5%
Weekly 15% -3% 8%
What does it mean for price action?
Get My Guide
FTSE 100 vs FTSE 250: What Outperforms When Bank of England Cuts Rates

Source: Refinitiv, DailyFX

Figure 1: FTSE 100 During Bank of England Rate Cut Cycles

FTSE 100 Impact when Bank of England Cuts Rates

Source: Refinitiv, DailyFX

FTSE 250 Has Outperformed the FTSE 100 When the BoE Eases

Much like the FTSE 100, the more domestically focused FTSE 250 has performed better in the long term when the FTSE 100 eases monetary policy. That said, the FTSE 250 has tended to outperform the internationally exposed FTSE 100. While in the short-term the FTSE 250 has often continued to fall in the short-run with larger drawdowns following an emergency rate cut.

FTSE 100 vs FTSE 250: What Outperforms When Bank of England Cuts Rates

Source: Refinitiv, DailyFX

Figure 2: FTSE 250 During Bank of England Rate Cut Cycles

FTSE 250 performance after Bank of England Emergency Rate Cut

What Next for the Bank of England?

With the Bank of England providing a sizeable stimulus package and the UK Government announcing a fiscal boost, the UK looks to be the only country thus far to provide coordinated monetary and fiscal support. However, should the spread of COVID-19 worsen, the Bank of England can be expected to ease further, which would likely include more unconventional measures. The BoE have already signaled that the lower bound is below 0.25% but above 0% (0.1%), meaning that interest rates are noted expected to move notably lower. Alongside this, the incoming BoE Governor, Andrew Bailey has highlighted that the BoE has used up about half of its touted policy space (previously noted 250bps of policy space via forward guidance, rates and QE) and thus further action would likely see QE restarted.

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES