BoE Governor Bailey, "Interest Rate Turning Negative In The Future", Pound Fell In Early European Trading



The British Pound reacted to comments by Bank of England Governor Andrew Bailey on the prospect of UK interest rates turning negative in the future.

Bailey said at a virtual event hosted by Queens University in Belfast that the MPC has an open mind about whether and when to cut the basic Bank Rate to zero or below.

Markets interpretation that the Bank's Governor speech as confirmation that another cut is coming, by mid-2021 at the latest.

The Pound is highly sensitive to interest rate expectations, tending to fall when expectations for future interest rate cuts start to increase.

Senior FX Strategist at Rabobank say

"If redundancies surge when the furlough scheme end in October, this will inevitably lead to demands that the government is not doing enough to support the economy. More fiscal stimulus in the UK in the coming months could bring some support for the pound. However, if the Chancellor appears reluctant to spend, GBP could be exposed to more downside risk since it may increase the pressure on the BoE for further policy action".