GBP/USD: Pound drops as BOE prepares “all necessary steps”

The British pound is down against the US dollar on Monday afternoon after the Bank of England’s Markey Carney hinted the UK central bank could lower interest rates to support the UK economy during the coronavirus outbreak. Losses have been limited after similar clues were offered by the Fed’s Jerome Powell in the United States on Friday.

GBP/USD was lower by 41 pips (-0.33%) at 1.2778 with a daily price range of 1.2747 to 1.2851 as of 2pm GMT.

GBP/USD fell again on Monday, dropping back below 1.28 and adding to the -1.16% loss last week.

The pound – BOE working with HM Treasury and FCA to defend economic stability

The Bank of England Governor Mark Carney has said the BOE is working with HM Treasury and Financial Conduct authority (FCA) to ensure “all necessary steps are taken” to defend economic stability. UK policymakers stepped up their response after plunging share prices wiped £20 billion off the value of the UK stock market last week. The comments are being interpreted as increasing the likelihood of a cut to the UK benchmark interest rate at the March meeting of the Bank of England.

Global markets have been in turmoil and looking for some hope from policymakers that they can ease the damage caused by the virus. On Monday economists at the Organisation of Economic Cooperation (OECD) offered their view on what the likely impacts of the coronavirus might be on the global economy. The OECD said global growth could be cut in half but so far have just lowered their global economic growth forecast to 2.4% from 2.9%.

The dollar

Federal Reserve Chair Jay Powell issued a rare statement on Friday that said the bank would “act as appropriate” in response to the coronavirus. He has been followed by multiple other central bank heads, including Mark Carney at the Bank of England. The dollar came off its weekly highs in response to the Fed’s statement but is regaining its composure since lower interest rates look likely in many counties, including the United Kingdom. Markets are now pricing in a 100% chance that the FOMC cuts interest rates at the March meeting, up from 11% a week ago.

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