The British pound is higher against the US dollar on Tuesday, getting some respite from the intense selling that took cable to its lowest close in four months. Outgoing Bank of England Governor was talking to the UK lawmakers while a G7 communique that promised “appropriate” policies to the coronavirus outbreak.
GBP/USD was higher by 44 pips (+0.34%) at 1.2794 with a daily price range of 1.2747 to 1.2851 as of 2pm GMT.
The pound
Outgoing Bank of England Governor Mark Carney made a few departing remarks to the Treasury Select Committee before his successor Andrew Bailey takes centre stage as new Governor tomorrow. Carney warned that the economic effect of the coronavirus “could prove large” but he expects to see one or two quarters of impact on growth. Although it should be said he will not be the one deciding, he said we “should expect a response that has a mix of fiscal and central bank elements.”
But it would appear central bankers are not in a rush. Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee (MPC) said “I will not make a decision before seeing the data.” The next BOE meeting is March 24, giving three weeks’ worth of data to observe before a decision need be taken.
Separately the UK government released its emergency action plan in case the coronavirus spreads in a ‘worst-case’ scenario. The plans involved forced everything from school closures to bringing in the army. Some better than expected economic data from the United Kingdome was perhaps the difference-maker. The UK February construction PMI rose back to expansion at 52.6 against expectations of 49.0.
The dollar
The dollar was mixed as traders weighed up the chances of a Fed rate cut in March. There can be no doubt about what President Trump would like to see happen.
A G7 communique that some had pinned their hopes on left currency traders a little cold. There had been rumours of a “coordinated response”, expectations for some decisive action were limited. Being coordinated to a joint threat is good in theory but different economies are in a different position to respond, making the space for an action that suits everyone almost non-existent.
