The British pound is flat against the US dollar on Wednesday as the yield on UK government debt dropped to its lowest on record in expectation of an imminent cut to UK interest rates. The dollar was mixed as traders digested yesterday’s emergency Fed rate cut.
GBP/USD was higher by 3 pips (+0.01%) at 1.2810 with a daily price range of 1.2770 to 1.2833 as of 3pm GMT.
The pound
Economic data on both sides of the pond showed none of the signs of collapse that were seen in the figures out of China. The final UK February services PMI dipped slightly to 53.2 vs from 53.3 in the preliminary reading. This compares very favourably to the China Caixin services PMI which cratered to a record low of 26.5
Rumours of an emergency Bank of England rate cut to match the actions of the Federal Reserve were rightly dismissed in forex markets. The rate cut never happened, but it now appears a near certainty that there will be a UK rate cut at the scheduled meeting on March 26, and sooner remains a possibility. With lower UK interest rates on the horizon amid another big global downturn in yields, UK government bond markets were flashing warning signals as UK 10-year gilt yield fell to a record low.
The dollar
The dollar was mixed and the yield on 10-year US Treasuries rose back above 1% on Wednesday as markets awaited other central banks, particularly those inside the G7 to follow suit on the emergency rate cut seen in the United States on Tuesday. Not ones to disappoint, the Bank of Canada lowered its overnight rate by 50 basis points to target 1.25%. Most had been anticipating a more modest 25 basis point cut like that of the RBA so the BOC overdelivered.
A comeback for Vice President and Democratic Presidential candidate Joe Biden has helped improve risk appetite in US stock markets, with lesser need for a haven like the dollar. On the data front US ADP employment in February saw 183,000 jobs created instead of the 170,000 expected.