- BOE Hints at Quantitative Easing
- GDP Contracts to 2008 Levels
- Dollar Strength
Bank of England hinting at more quantitative easing on UK’s economy contracting the most since 2008 sent the GBP/USD pair tumbling to one-month lows. The pair has been under immense pressure amidst growing concerns about the health of the U.K economy compounded by Brexit concerns and an ever-strengthening dollar.
GBP/USD Sell Off
The pair is down by more than 1.25% for the year and trading at 2016 levels following the Brexit vote. Pound weakness in the recent past has come at the backdrop of an economic slowdown in the wake of the COVID-19 pandemic. A drop to the $1.222 level against the dollar all but affirms traders’ concerns about the U.K economy’s amidst a looming global economic recession.
Weakness in the British pound has been compounded further by data showing that the country’s economy shrunk by almost 6% in March as the COVID-19 pandemic took a toll on various sectors. The country appears to be in its deepest recession in more than three centuries.
The government has since resorted to pumping billions of dollars to support businesses as well as economies struggling amidst a fledgling economy. The central bank has also hinted at the possibility of carrying out more bond purchases of up to $240 billion in a bid to support the economy.
Amidst the government and central bank response, the British Pound has capitulated on U.S Dollar Strength. The dollar has continued to strengthen against other major currencies as investors continue to favor the dollar, amidst the current crisis. A spike in demand for the greenback as a safe haven is one of the reasons why the GBP/USD pair looks set to continue edging lower in the market.
Separately, the British pound has continued to make grounds against the Euro, which has also come under immense pressure on the dollar strength. The pound rallied by more than 0.3% against the Euro despite the country suffering its biggest GDP slump since 2008.