Bank of England Not Conducting More Stimulus Caused European Morning Volatility

The Bank of England held rates steady and announced no further stimulus, as expected, which resulted in a huge spike higher for GBP.

A huge jump was observed for the pound on two points: 1. No additional QE for the time being, as a bit of a surprise given the worsening economic picture seen of late for the UK. Remember more QE is dovish a GBP negative. 2. They suggested Britain’s economy could bounce back by 15% in 2021. The bank is anticipating quite a substantial jump in GDP for next year.

The rally for GBP was on a not so dovish rate decision and markets took some optimism from this one. It resulted in a decent wave of risk appetite across FX; AUD, NZD, EUR, CAD all gaining ground versus the safe-haven USD.

However, it also appeared to be an excuse for a needed technical correction following the substantial USD gains seen so far this week. The move has retraced somewhat across the board and appears vulnerable to resuming the trend of USD strength in our view. As noted in our dollar blog on Wednesday.

There are still outstanding GBP negatives; lack of Brexit developments and continued lockdown from the UK government, which is expected to be extended.



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