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Sterling Tanks After BoE Talks About Negative Interest Rates

The Great Britain pound sank today, overtaking the New Zealand dollar as the weakest currency on the Forex market during Thursday’s trading. The sterling dropped after the monetary policy announcement from the Bank of England. While the central bank kept its policy unchanged, the wording of the statement led to the drop of the currency. As was widely expected, the BoE left its monetary policy unchanged, with the benchmark interest rate remaining at 0.10% and the size of the Asset Purchase […]

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The Great Britain pound sank today, overtaking the New Zealand dollar as the weakest currency on the Forex market during Thursday’s trading. The sterling dropped after the monetary policy announcement from the Bank of England. While the central bank kept its policy unchanged, the wording of the statement led to the drop of the currency.

As was widely expected, the BoE left its monetary policy unchanged, with the benchmark interest rate remaining at 0.10% and the size of the Asset Purchase Facility at £745 billion. Policymakers voted unanimously for both decisions. But what caught the attention of market participants and analysts was the part in the Monetary Policy Summary and minutes of the Monetary Policy Committee meeting, which revealed that policymakers are considering negative interest rates:

The Committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years. Subsequently, the MPC had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates.

The outlook for negative interest rates added to other unfavorable factors, like the resurgence of new coronavirus cases in Britain and the threat of no-deal Brexit. As a result, the pound sank against all other most-traded currencies, even the New Zealand dollar, which started the trading session as the weakest currency.

GBP/USD dropped from 1.2968 to 1.2882 as of 13:24 GMT today. EUR/GBP rallied from 0.9113 to 0.9159. GBP/NZD dipped from 1.9256 to 1.9163 after rallying to the daily high of 1.9382 earlier.


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