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Coronavirus Latest: Bank of England Delivers Emergency Rate Cut, GBP/USD Volatile

Coronavirus Latest: Bank of England Delivers Emergency Rate Cut, GBP/USD Volatile

2020-03-11 09:45:00
Justin McQueen, Analyst
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GBP/USD Analysis and Talking Points

  • Bank of England Delivers Emergency Rate Cut of 50bps to 0.25%
  • GBP/USD Drops in Reaction to BoE Easing

Bank of England Delivers Emergency Rate Cut

Following the spread of the coronavirus, the Bank of England have unanimously voted to provide an emergency cut to the bank rate by 50bps to 0.25%. Alongside this, they will also introduce a new term funding scheme with incentives for small and medium sized enterprises, while the financial policy committee (FPC) have reduced the countercyclical capital buffer rate to 0% from 1%. As a reminder, this comes ahead of the UK budget at 1200GMT, where the Chancellor of the Exchequer to raise issuance by GBP 40bln to circa GBP 170bln.

GBP/USD MIXED
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Change in Longs Shorts OI
Daily 3% 1% 2%
Weekly -8% 1% -4%
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BoE Follows in Fed’s Footsteps

Keep in mind that this also follows in the Federal Reserves footsteps who last week delivered an emergency 50bps rate cut in order to combat the uncertainty stemming from the spread of the coronavirus.

US Dollar, Gold Price, S&P 500 Outlook: Impact of Emergency Fed Rate Cuts

Market Reaction: In response to the rate cut, GBP/USD dropped as much as a point before retracing half of the move. While the rate cut inter-meeting rate cut is a surprise, 1-week overnight index swaps had in fact largely priced in a BoE rate cut within the week. Elsewhere, the FTSE 100 is the notable beneficiary gaining as much as 2% to hit 6100. However, with the spread of the coronavirus showing little signs of slowing down in the UK, the FTSE 100 may still come under pressure in the following sessions.

GBP/USD Price Chart: Daily Time Frame

Coronavirus Latest: Bank of England Delivers Emergency Rate Cut, GBP/USD Volatile

Source: IG Charts

FTSE 100 Reaction to Bank of England Rate

Coronavirus Latest: Bank of England Delivers Emergency Rate Cut, GBP/USD Volatile

Source: IG Charts

--- 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.

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