- BOE Monetary Policy
- U.K Economy Contraction
- Euro Weakness
The EUR/GBP regained its bullish momentum, on Friday, in the wake of the Bank of England painting a gloomy outlook of the U.K’s economy. The pair clawed back to three-month highs as the Sterling Pound weakened across the board after the BOE decided to keep interest rate unchanged.
The pair had initially plunged to one-month lows as the Sterling pound strengthened on optimism about BREXIT talks and the opening or the U.K economy. The Pound has since given up all the gains having become clear that the U.K faces a long road ahead as the COVID-19 pandemic continues to weigh heavily on the already struggling economy.
The BOE Monetary Policy Committee voted unanimously to keep the interest rate at 0.1%, hoping it will help revitalize lending in the economy. The committee also agreed to keep the existing £200 billion quantitative easing program. On the other hand, the asset purchase program received a £100 billion boost to cover the next six months.
The MPC report masked the true fallout of the COVID-19 pandemic. Fears that the unemployment rate will remain above the 5% level given the weak economic situation should continue to weigh on Sterling sentiments in the market.
Amidst the weakness in the British Pound, the EURO is also not doing well. The EUR remains under pressure as traders await the long-term lending operation results, which has allowed banks to lend at 1%. Concerns over the effectiveness of the negative interest rates passed by the ECB also continue to weigh on EURO strength, conversely limiting its gains against the Pound.
The Eurozone has also struggled to bounce back from the COVID-19 pandemic even on the ECB, passing a €1.35 trillion stimulus package. A plethora of weak economic data, from some of the biggest economies in the Eurozone, has continued to weigh heavily on the EUR.
Concerns about whether the U.K will reach an agreement with the EU as part of the ongoing BREXIT talks also continues to weigh on EUR/GBP sentiments, conversely, price action.