Fundamental Comment

Pound extends losses amid expectations of BOE action

Pound extends losses amid expectations of BOE action

The British pound extended its losses versus major currencies on Tuesday amid expectations the Bank of England would act soon to combat the dismal economic impact of the spread of the coronavirus.

The GBPUSD dropped for a sixth straight session to a low of 1.2210, noting that it fell to a bottom of 1.2202 on Monday, the lowest level since October 2019.

Against the euro, the EURGBP pair climbed to a new high of 0.9148, the highest since September last year, while it is currently trading at 0.9126.

Meanwhile, there are mounting expectations that the BOE would follow the suit of major central banks by cutting interest rates or announcing new quantitative easing measures to mitigate the damages stemming from the rapid outbreak of the Covid-19.

Expectations are in favor seeing new QE measures next week after the BOE's surprise interest rate cut by 50 basis points last week.

Some analysts argue that more rate cuts by the BOE beyond the current 0.25 percent could be harmful rather than beneficial to the economy, which increase the case for a QE re-launch.   

In 2008, the pound fell dramatically after the accouchement of QE measures by the BOE, which means any new action by the central bank may send the pound even lower.

The new appointed BOE Governor Andrew Bailey promised on Monday deliver further “prompt action” when needed to overcome the impact of the global pandemic.  

“That’s why you saw prompt action last week, that’s why you will see prompt action again when we need to take it, and the public can be assured of that,” Bailey said.

The UK government plan to control the spread of the coronavirus by, effectively letting it spread had caused the pound to sink.

An aggregate of 55 people in the UK have now died after testing positive for the Covid-19, which means that an increase of 19 deaths in just 24 hours, Health Secretary Matt Hancock said.

One hour later, the U.K. will release its unemployment report for the quarter-ended January and jobless benefits for February.

It is worth mentioning that the pound has been falling since touching a peak of $1.3199 on March 9.

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