Macro economics

Analytics on 18/06/2020. Bank of England expands its asset purchase program as expected

European stock markets are trading marginally lower on Thursday following losses in Asia and the United States during a choppy week in which investors waver between some signs of improving economic data and concerns over a second wave of the coronavirus pandemic. Also, market participants were cautious ahead of the Bank of England interest-rate decision. The central bank expanded its asset purchase program by £100 billion to a total of £745 billion. MPC voted 8-1 in favor of increasing the QE program target. The bank said the total stock of asset purchases to be hit around the turn of the year.

On the positive side, the Chinese Centers for Disease Control and Prevention expert said the new coronavirus outbreak in Beijing was now under control. These days, rising cases in the city prompted the authorities to cancel flights, close schools as well as block off some neighborhoods.

Against this backdrop, the UK’s FTSE 100 sheds 0.22% to 6,239. Italy’s FTSE MIB edges lower by 0.10 percent to 19,565, France’s CAC 40 loses 0.55 percent to 4,968, while German DAX 30 declines by 0.31 percent to 12,344. U.S. stock index futures fluctuate as investors are awaiting new jobless claims data.

Following the Bank of England decision, GBPUSD jumped to 1.2550 from the intraday levels below 1.25. The central bank noted that the economy, particularly the labor market, will take some time to recover while the outlook for the UK and global economies is unusually uncertain. The regulator now expects inflation to fall further below target in the coming months. Despite fairly downbeat comments, the pound rallied in a knee-jerk reaction to the outcome of the meeting as the Bank of England refrained from introducing negative interest rates while expansion of the asset purchase program was priced in already.

Meanwhile, EURUSD turned marginally higher on the day, challenging the 1.1250 intermediate resistance at the time of writing. Once above this level, the pair will retarget the 1.13 barrier that capped bullish attempts on Wednesday. In general, the upside potential for the common currency remains limited amid mixed risk sentiment. Later in the day, the US jobless claims data could affect short-term dynamics in the pair.

In commodities, oil prices exceeded the $41 handle in recent trading but are yet to confirm the breakout on a daily closing basis. There is a high possibility of profit-taking in case of further bullish attempts as sentiment in the market looks unsustainable, with Brent is still vulnerable, especially as crude oil stockpiles continued to rise last week, as the official government report showed yesterday. On the downside, Brent needs to hold above the $40 handle in order to avoid a deeper retreat in case the selling pressure reemerges any time soon.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 0,25 %
Switzerland 3 Month LIBOR Range -0.75 %
United Kingdom Repo Rate 0,10 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 0,25 %
Australia Cash Rate 0,25 %
Canada Overnight Rate Target 0,25 %
All rates

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