Brexit in a week from 9/3 – 15/3/2020
The British pound experienced a free fall last week and dropped by an incredible 800 pips. The blend of uncertainty about negotiating a trade agreement with the EU and the growing coronavirus pandemic was too much for the GBPUSD. At the same time, the Bank of England surprised by the unexpected rate cut. However, the US Fed also responded and pulled out a bazooka to fight the coronavirus, unexpectedly lowering rates from 1.25% to 0.25%. Will it stop further pound drops?
Last week, the EU and Britain agreed to postpone the next round of negotiations on a trade agreement in view of the coronavirus pandemic. Brexit is currently in the shadow of coronavirus infection.
Meanwhile, Boris Johnson has decided to take the risk, and unlike other European countries where the goal is to restrict the movement of people, such radical measures are not currently being taken in Britain. It is based on scientific conclusions that in the long term it should be beneficial for society to build up group immunity against coronaviruses. Which practically means exposing society to contagion and to deal with it naturally. The assumption is that in most cases the disease is not fatal.
From a macroeconomic perspective, two things were the most important last week. First, on Wednesday, the Bank of England surprisingly lowered the rate from 0.75% to 0.25%.
This was a step that the bank justified by the need to respond to the current economic shock caused by a coronavirus. On Wednesday, GDP data remained below expectations, with GDP reaching 0.6% on a year-on-year basis (analysts expected 0.9%) and on a month-on-month basis, GDP reached 0.0% (expectations were 0.2%).
The biggest surprise came on Sunday at 10:00 p.m. The US Fed did not wait for Wednesday's scheduled meeting and lowered its key interest rate by 1% from 1.25% to 0.25%.
This is due to the current risks associated with coronavirus infection. This could have a positive effect on couples with USD in the short term. Overall, however, the British pound is still under pressure in our opinion.