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Why did the British pound rise so sharply? The Bank of England abandons the idea of ​​negative interest rates.

DATE OF PUBLICATION: 2021-01-12 15:50:10 The British pound continued to rise on Tuesday after news that the Bank of England may abandon plans to introduce negative interest rates and is ready to cut borrowing costs by the end of the year. examined the statements of the Governor of the Bank of England Andrew Bailey that negative interest rates are quite a problem and they are an unacceptable tool for the Central Bank. After that, the British pound rose more than 100 pips from the day’s opening level. The yield on 10-year government bonds also rose against this background by three basis points, to 0.34%. According to Reuters, Andrew Bailey dispelled rumors that a cut in interest rates below 0% may occur as early as next month. In this regard, many investors are starting to revise their portfolios with the expectation of further strengthening the British pound immediately after the problems with the new strain of coronavirus are resolved and tough quarantine measures are lifted. Until today, a number of economists had expected that the Bank of England could introduce negative interest rates. rates are already during the February meeting this year. In the immediate aftermath of the Brexit deal, many traders have now begun to pay more attention to the prospects for the recovery of the UK economy, which is in a state of total paralysis due to the continuing dew of coronavirus infections. However, not everyone at the central bank agrees with the opinion of Andrew Bailey, who said in an interview that the economy is going through a difficult period. For example, Deputy Governor Ben Broadbent thinks very differently. However, we will return to it a little below. The Bank of England will most likely now keep interest rates unchanged, may change its monetary policy course by reducing the asset repurchase program at the end of the year. After that, the road for buyers of the British pound to new highs will be open. Let me remind you that the European Central Bank has resorted to measures to introduce a negative interest rate on deposits a long time ago, which now maintains it at -0.5%. However, economists at the Central Bank of England have concerns about maintaining the resilience and profitability of the UK banking sector if the regulator resorts to this method. As I noted above, Deputy Governor of the Bank of England Ben Broadbent said today that the coronavirus pandemic is having less than anticipated. pressure on inflation, which also encouraged buyers of the British pound. Broadbent noted that the implications for price pressures over the medium term – and therefore for monetary policy – are likely to be limited. Broadbent also drew attention to the fact that the pandemic did not exert such serious pressure on inflation as previously expected. Despite this, in order to count on a steady return of inflation to the target of about 2.0%, the Central Bank will need to maintain the asset repurchase program and low interest rates at current levels for a rather long period. The Deputy Governor also noted that GDP is likely to fall in the 4th quarter of 2020 and also in the 1st quarter of 2021, as I spoke about a similar situation in the European economy this morning. The continued recession in 2021 will also be directly related to the sharp economic slowdown at the end of 2020. Even if the fall in eurozone GDP is less severe than economists expect, it will still increase pressure on indebted governments and the European Central Bank, which must be proactive. This is another reason why the European currency will remain under pressure. Regarding the technical picture of the GBPUSD pair, a breakout of the resistance around the 36th figure will surely lead to a reversal of the downtrend formed earlier this year and a new, larger wave. growth of a trading instrument to highs to 1.3660 and to the 37th figure. It will be possible to talk about pressure if the bears manage to cope with the activity of buyers in the area of ​​1.3601, it will be possible only after GBPUSD drops below 1.3530. In this case, we can expect a return to 1.3450 and to the 1.3370 area. Now, as for the numbers, which were not so many today in the first half of the day. A report by the Istat Bureau of Statistics indicated that Italian retail sales continued to decline at the fastest pace in seven months. This happened against the background of weak demand for non-food products due to the coronavirus pandemic. According to the data, retail sales fell immediately by 6.9% in November, after growing by 0.5% in October 2020. It was the biggest drop since April 2020, when sales dropped by 10.1% at once. A 1% growth in food sales was offset by a sharp 13.2% decline in non-food sales. On a year-on-year basis, retail sales were down 8.1% year-over-year, and the U.S. Small Business Optimization Report was ignored by traders. Optimism has fallen sharply, according to the data, due to the rise in Covid-19 late last year, as well as a record number of infections, leading to tightening of work and imposing restrictions on many companies. According to the report, the index of sentiment of the national federation of independent business dropped immediately by 5.5 points to 95.9 points, while economists had expected this figure to be 100.2 points. The renewed isolation measures continued to put pressure on business activity, leading to higher expectations for reduced sales. The owners’ assessment of the conditions for doing business dropped to the level of April 2016. The NFIB noted that the American economy entered 2021 with exactly the same problems that it faced in 2020. As for the technical picture of the EURUSD pair, it remained unchanged. compared to the morning forecast. The bulls will be able to level the situation, or at least stop the fall of the euro only after they regain control of the resistance at 1.2180. Only a break of this range would provide a larger upside movement towards the 1.2225 and 1.2290 highs. If sellers of risky assets turn out to be stronger and break through the minimum of 1.2130, then most likely the pressure on the trading instrument will only increase, which will open a direct path to the areas of 1.2080 and 1.2040. Material provided by InstaForex – Source – InstaForex

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