BoE narrative to support the Pound

Hi everyone,

There is plenty going on in the currency market at the moment, but the Pound remains overall well supported. Central banks and the bond market have really come to the fore in recent weeks and it was the former that had everyone's attention the last couple of days. 

On Wednesday, the Fed announced a mixed outlook for the economy. Firstly, the good news was about the vaccination success and recent Government relief fund that will help trigger a much stronger than expected growth figure this year. Forecasts have risen nicely from 4.2% to 6.5% for 2021. However, the Fed are planning to keep interest rates close to 0 until 2024, much later than economists have predicted. The continued deep freeze in the US is also causing issues, especially when it comes to vaccines, jobs and home builds. £-$ rates remain relatively unchanged for the week as the Pound waits to pounce to the 1.40 level again. 

Yesterday, it was a similar story with the BoE announcing interest rates will not be hiked for a good while yet, possibly 2024 also. But the market is more concerned with the BoE being a headwind for the £, rather than an aid. As long as negative interest rates remain off the table, each monthly MPC meeting should be positive for the £ as the economy continues to bounce back. It was also announced yesterday that the Government is borrowing less than expected. £19BN was borrowed in February, down from nearly £22BN that was forecast. It means the Government is well on target to undershoot its borrowing.

The EMA confirmed yesterday that the Oxford/AstraZeneca vaccine is not associated with a risk of blood clotting and the EU nations that stopped using it have now restarted. A strange thing to have done personally with the tiny numbers that were originally associated and whilst a third wave hits the Euro-Zone. The Covid-19 figures out of Germany this week are not a good sign and with France and Italy extending lockdown, it's likely the EU's reopening of its economy will be pushed further into Q2. This will aid in £-€ rates short-term as the UK steams ahead in opening its own economy. 

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