The British pound is up against the US dollar on Friday amid massive demand for US government debt that has pushed yields on 10 year Treasuries to an astonishingly low 0.75%. Meanwhile incoming Bank of England Governor Andrew Bailey has setback expectations for an emergency UK rate cut.
GBP/USD was higher by 66 pips (+0.51%) at 1.3022 with a daily price range of 1.2947 to 1.3026 as of 2pm GMT. That leaves a weekly gain of +1.52%.
The pound
Incoming Bank of England Governor Andrew Bailey answered a question in the British parliament about whether the Bank of England could cut interest rates before the next scheduled meeting. He responded saying “The Monetary Policy Committee hasn’t in its history tended to do that but there is nothing that in the constitution of the Monetary Policy Committee to stop that happening.” He then added “I think what we need frankly, is more evidence than we have at the moment, as to exactly how this is feeding through.”
The timing of a BOE emergency rate cut would be very difficult timing given the announcement of the UK budget on March 11. However once the budget is out of the way, the chances for an unscheduled UK rate cut could start to increase.
The dollar
There was a brief jump in the dollar in reaction to the better than expected monthly jobs figures, but the reaction quickly faded amid a broader sell off. The good numbers have been dismissed as irrelevant because they don’t account for the coronavirus. It has only been in the last two weeks that the COVID-19 virus started to take hold in the United States, which would not have affected any hiring decisions that led to people starting a new job in February.
Non-farm payrolls beat expectations with 273,000 American jobs created versus the 175,000 expected and the 225,000 in January. Unemployment fell back to a half-century low of 3.5% and average hourly earnings climbed 3% year over year. If there is a silver lining to the stale economic data, it is that the US economy was in better shape than previously thought before the coronavirus outbreak.
