BoE says sub-zero interest rates can be harmful to banks; US dollar gets support from promise of stimulus.
The pound sterling moved higher against its two main rivals during London trade on Tuesday after comments from Andrew Bailey suggested that the central bank would not be considering a negative rate environment. There had been some expectation that the Bank of England might move to sub-zero interest rates as soon as May, but the BoE Governor said earlier today that that move would likely hurt banks rather than help. That helped to greatly improve risk sentiment for the pound, though analysts warn that the threat to the British economy from the coronavirus and the subsequent quarantines and restrictions are likely to continue to weigh on the currency.
In London trading as of 10:58 AM, the GBP/EUR was trading at 0.8944 pence, a loss of 0.5459% and off the session trough of 0.89376 pence. The GBP/USD was higher at $1.3576, a gain of 0.5064%; the pair has ranged from a low of $1.35018 to a peak of $1.36073 in today's session. The GBP/JPY was higher at 141.5240 yen, up 0.5306%, a far distance from the session peak of 141.728 yen.
Dollar Gets Support from Promise of Stimulus
The US dollar remains supported by expectations of a massive stimulus program from the incoming Biden administration. President-elect Joe Biden has promised that the government would provide trillions of dollars in relief packages. Though market players would normally be concerned with the threat of inflation from such a large-scale stimulus effort, the recent rise in yields on US Treasury instruments has helped to shift sentiment in favor of the greenback.