Return to daily updates Thursday March 5th 2020

Sterling gains some ground as rate cut expectations waned

Headlines

  • Sterling gains some ground as rate cut expectations waned
  • USD struggles to gain

GBP

  • (Reuters) – Sterling gained further ground against the U.S. dollar and euro on Thursday, as expectations waned for an immediate Bank of England rate cut to follow this week’s emergency move from the U.S. Federal Reserve to contain coronavirus damage. Incoming BoE governor Andrew Bailey dampened expectations of an inter-meeting cut late on Wednesday, telling lawmakers the central bank should wait until it has more clarity about the economic hit from the outbreak. Sterling edged up 0.2% to $1.2900, moving further away from 4-1/2 month lows hit on Friday. It gained a third of a percent against the euro at 86.22 pence per euro.

EUR

  • The Euro is expected to strengthen against the USD in the coming months, regardless of whether the European Central Bank (ECB) announces further stimulus measures. Market players have priced in a higher chance that the ECB will also cut rates next week, but its main interest rates are at a lower level compared to those in the U.S. The ECB’s deposit rate — which is the interest that the central bank provides to financial institutions that deposit cash at the ECB — stands at -0.5. Following Tuesday’s decision, the Fed’s benchmark funds rate sits now between 1%-1.25%.

USD

  • (Reuters) – The dollar struggled to make headway on Thursday, as very low U.S. yields and the prospect of even more monetary easing held back gains, while virus fears supported the safe-haven yen. Strong data showing U.S. services activity at a one-year high and hiring growth had pushed the greenback 0.3% higher on the euro overnight. An emergency 50 basis point interest rate cut by the Fed on Tuesday had sent the dollar backwards against most Asian currencies and down to a five-month low of 106.84 yen.
Amir Mehrad
Market update by Amir Mehrad
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