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Pound Firms as BoE Members Comment on Negative Interest Rates

January 12, 2021 at 14:56 by Vladimir Vyun

£10The Great Britain pound rallied today, trading as the strongest major currency on the Forex market. Analysts explained the rally by comments from central bank’s officials regarding the outlook for negative interest rates.

Yesterday, Silvana Tenreyro, External Member of the Monetary Policy Committee at the Bank of England, talked about the negative interest rates. She said that the MPC will discuss whether negative rates are feasible in the first place and only then move to a discussion if they are appropriate in the current circumstances:

Once the Bank is satisfied that negative rates are feasible, then the MPC would face a separate decision over whether they are the optimal tool to use to meet the inflation target given circumstances at the time.

Today, BoE Governor Andrew Bailey said that negative rates have issues and can hurt banks:

In simple economics and maths terms, there is nothing to stop it at all. However there are a lot of issues with it.

The comments led to speculations that Britain’s central bank will try to refrain from cutting interest rates below zero.

British Retail Consortium reported that like-for-like retail sales rose by 4.8% in December from a year ago. That is a slower rate of growth compared with the median forecast of 5.9% and the previous month’s 7.7%. Helen Dickinson, Chief Executive at BRC, commented on the result:

Covid has led to 2020 being the worst year on record for retail sales growth.

The outlook was also bleak:

With shops still closed for the foreseeable future, costing stores billions in lost sales, many retailers are struggling to survive.

GBP/USD rallied from 1.3511 to 1.3600 as of 14:55 GMT today. EUR/GBP slumped from 0.8990 to 0.8934. GBP/CAD jumped from 1.7273 to 1.7372.

If you have any questions, comments, or opinions regarding the Great Britain Pound, feel free to post them using the commentary form below.

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