By Yasin Ebrahim
Investing.com – The pound gave up ground against the dollar to test a key level Monday as investors bet the Bank of England is likely to step up monetary policy easing following a second lockdown in England.
fell 0.36% to $1.2896 to trade just above its 100-day moving average of $1.2874.
Rumors are swirling that the BoE on Thursday is set launch £100 billion of asset purchases.
“[T]here is little doubt the bank will need to remain supportive at this time of need. According to the latest Reuters poll, we should expect a fresh £100 billion added to the asset purchase facility. That would take the total size of the package to £825 billion,” IG senior market analyst Joshua Mahony said in a note.
The widely expected move from the bank to shore up the economy comes as the U.K. announced over the weekend that it would enter a second national lockdown for a month to stem the surge in Covid-19 infections. Coronavirus cases in the UK on Monday fell to 18,950 compared with 20,900 cases a week ago.
The new lockdown measures demand that people stay at home unless it’s for essential purposes, including education, medical reasons, or to shop for groceries.
Economists have warned that another UK lockdown would likely dent economic growth in the final quarter of the year, throwing the country into a double-dip recession.
Thursday’s meeting will come too soon for the central bank to cut interest rates below zero, but negative rates are likely to be considered in future meetings as the bank has limited capacity to keep ratcheting up its bond-buying program.
“[I]n terms of forward guidance, the MPC also seems bound to keep the door open to a possible eventual cut in Bank Rate to negative territory if economic conditions warrant such a move once the necessary technical preparations have concluded,” Daiwa Capital Markets said.
Morgan Stanley (NYSE:) agreed, adding that any potential move to cut rates below zero would come after UK banks have provided their assessment on how they would prepare for a negative rate environment.
“While we expect further guidance on negative rates, we don’t expect any action on Thursday, pending receipt of banks’ responses on the operational impact of negative rates, due only later in November,” Morgan Stanley said.
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