- BoE Governor Andrew Bailey considering negative interest rates
- UK PMI’s to show contraction slowing
- Safe haven dollar in demand as US – Sino tensions escalate
- 07:15 UTC, GBP/USD was -0.34% at US$1.2197 >> Real time exchange rates
The Pound is on a two-day losing streak, reversing from high of US$1.2297 on Tuesday.
The Pound versus US Dollar exchange rate settled on Wednesday -0.1% at US$1.2241 after the Bank of England’s Governor praised negative interest rates.
At 07:00 UTC, GBP/USD is extending losses, trading -0.34% at US$1.2197 ahead of UK purchasing managers index data and US Initial jobless claims.
The BoE Governor Andrew Bailey’s U -turn on negative interest rates in keeping the Pound under pressure. The comments from Andrew Bailey came following data which revealed that UK inflation dropped to 0.8% year on year in April. Negative interest rates makes it expensive for banks to hold cash, encouraging them to lend more to businesses. A useful tool during the coronavirus crisis but one that is also dragging sterling lower.
Investors will look towards the Purchasing Managers Index (PMI) for both the service and manufacturing sectors, due for release today. Analysts are expecting to see an improvement from April’s worst ever prints. However, given that the lockdown in Britain has so far only eased very slightly in May, activity is expected to have only increased very slightly.
Analysts are forecasting the service sector PMI to increase to 25 in May, up from 13.4 in April. Manufacturing activity is expected to have increased to 36, up from 32.6. The level 50 separates expansion from contraction. A weak reading could pull the Pound lower.
The US Dollar is trending higher on Thursday as investors seek out its safe haven properties. Risk sentiment has taken a hit as tensions between US and China escalate. President Trump ramped up his attack on China by accusing Beijing of a massive disinformation campaign and allowing coronavirus to spread across the globe. The White House also released a 20-page report to Congress criticising China’s economic and ministry policies.
Looking ahead investors will focus on US initial jobless claims data. Analysts are expecting 2.4 million Americans to have filed for unemployment benefits. This will be the lowest since the lockdown escalation began. It would also take the total to 39 million American, or 23.9% of the workforce. Analysts are still not expecting to see an indication of rehiring reducing unemployment with continuing jobless claims expected to increase again.