British Pound (GBP) Latest - Lockdowns, Brexit and Negative Interest Rates
EU/UK Trade Talks and GBP/USD Price, Analysis and Chart:
- A new tiered lockdown system is expected to be announced later today.
- BoE asks commercial banks if they are prepared for zero percent and/or negative rates.
- EU/UK trade talks intensify ahead of October 15 line in the sand.
UK PM Boris Johnson is expected to announce a new three-tier lockdown system later today in a further effort to stem the spread of Covid-19. The new system will allow the government to put certain areas in lockdown depending on the current infection rate and will prevent a further national lockdown from happening. While the new measures have not yet been officially announced, it is likely that in the most severe cases that pubs will have to close, along with gyms and restaurants, and that households will be unable to mix. According to media reports, schools and universities will remain open.
EU/UK trade talks will intensify this week ahead of PM Boris Johnson’s October 15 deadline. While this deadline may be flexible, Johnson wants to know this Thursday if a deal is possible, and if a deal is not possible then both sides should move on and fully prepare for WTO-trade terms from the start of next year. This week also sees the latest European Council meeting, starting on October 15, where post-Brexit trade talks will dominate the agenda.
Bank of England deputy governor Sam Woods has sent a letter to commercial banks asking them how prepared they are for zero or negative interest rates. According to a Reuters report, the letter asked for ‘specific information about your firm’s readiness to deal with a zero Bank Rate, a negative Bank Rate or a tiered system of reserves remuneration, and the steps that you would need to take to prepare for the implementation of these’.
GBP/USD remains above 1.3000 despite the potentially volatile background due to the ongoing weakness of the US dollar. Cable has printed a series of short-term higher lows and higher highs since the September 23 low print around 1.2675 and is now above all three simple moving averages, albeit just in the case of the 50-dma. The pair look overbought, using the CCI indicator, and with a lot going on this week it may be better to watch price action from the sidelines in the short-term.
GBP/USD Daily Price Chart (April – October 12, 2020)
IG client sentiment data shows 38.99% of traders are net-long with the ratio of traders short to long at 1.56 to 1.The number of traders net-long is 1.68% higher than yesterday and 11.59% lower from last week, while the number of traders net-short is 2.57% higher than yesterday and 13.39% higher from last week.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.
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