Yesterday afternoon saw the British central bank, the Bank of England (BoE) cut the UK’s interest rate to 0.1% from its previous 0.25%. the move made by the BoE suggested that necessary action was required to help the UK economy amid the coronavirus outbreak and the damage caused by it. The shock announcement saw GBP edge over the euro, US dollar and many other major currencies on Thursday, putting the British currency in good stead to close the trading week. The central bank also announced advancements in the country’s quantitative easing programme. Meanwhile, EUR traders grow increasingly concerned about the Eurozone’s future as many in the market are pitting the single currency up for a recession in the near term, which has kept investors keeping their distance from the euro for the time being.
Bank of England Announces Emergency Interest Rate Cut, Which Sees the UK Rate Drop to 0.1%
Thursday afternoon saw the Bank of England cut interest rates to 0.1% and increased its government and corporate bond holdings by £200BN in unanimous decision in a bid to fend off the negative effects of the COVID-19 outbreak. The total value of bonds the Bank will now hold is therefore taken up to £645 billion and should provide enough demand to push the yield paid by the government and corporates lower. The central banks Monetary Policy Committee (MPC) held a special meeting yesterday in which it detailed the decision to cut rates and highlighted that “over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves. As a consequence, UK and global financial conditions have tightened”.
As a direct result of the move made by the BoE, the pound Sterling saw a rise against the euro in the GBP/EUR trading pair, with the rate sitting at 1.0803 yesterday, which was 1.86% higher than how it had started the trading day.
ECB Bumper Stimulus Package Shrugged off by Investors
The Eurozone’s ECB announced its own stimulus package earlier in the week which was still being digested by the market before the BoE’s shock rate decision. The ECB’s ‘Pandemic Emergency Purchase Programme’ injected €750bn to help support the Eurozone’s economy amid the global coronavirus pandemic. However, the market noted that the GBP/EUR rate still continued to rise by around 1.3%, with many of the single currency’s investors remaining cautious about the blocs outlook as a recession in the near-term looks very likely.
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