BOE Injects A Further £100 Billion, Discusses Negative Rates

<h2>APF Increases to £745 Billion</h2>
<p>The Bank of England yesterday stepped up its fight against the economic downturn occurring as a result of the COVID-19 lockdowns. The BOE announced an additional £100 billion in purchases to be made as part of its quantitative easing program. With this new addition, the BOE’s Asset Purchase Facility (APF) has increased to £745 billion.</p>
<p>The move was sell signalled ahead of the meeting and despite some speculation that the BOE might go for a larger addition on the back of the record drop in April GDP (-20.4%), the bank opted for the expected adjustment at this stage.</p>
<p>The BOE governor was keen to highlight the uncertainty still present in the outlook, saying: “As partial lifting of the measures takes place, we see signs of some activity returning. We don’t want to get too carried away by this. Let’s be clear, we’re still living in very unusual times.”</p>
<p>There has been growing speculation over recent weeks that the BOE is readying itself for a move into negative rates. The bank recently confirmed that it has been discussing all option, including negative rates and again, at this meeting, Bailey said “We are assessing the case for negative interest rates,” but added that “It is not a decision that is any sense imminent.”</p>
<h2>BOE Warns Over Uncertainty</h2>
<p>In terms of the outlook going forward, the BOE added to the message that has been shared by central banks across the globe, highlighting the “unusually uncertain” conditions present amidst the ongoing pandemic. Furthermore, Bailey was keen to stress that recent positive data surprises were encouraging but nothing to get carried away over. On this matter Bailey said: “Although stronger than expected, it is difficult to make a clear inference from that about the recovery thereafter. There is a risk of higher and more persistent unemployment in the UK. Even with the relaxation of some Covid-related restrictions on economic activity, a degree of precautionary behaviour by households and businesses is likely to persist. The economy, and especially the labour market, will therefore take some time to recover towards its previous path. Inflation is well below the 2% target and is expected to fall further below it in coming quarters, largely reflecting the weakness of demand.”</p>
<h2>Haldane Dissents</h2>
<p>However, there were some hawkish voices among the BOE’s policymakers. Andy Haldane voted against the expansion in QE saying “the recovery in demand and output was occurring sooner and materially faster than had been expected at the time of the previous MPC meeting”. Haldane went on to say that should the current trajectory of the recovery continues, the total damage would only be half of that forecast in the bank’s projections last projections.</p>
<h2>Technical Views</h2>
<p><strong>EURGBP (Bullish above .9097)</strong></p>
<p>From a technical viewpoint. EURGBP continues to put pressure on the .9046 level resistance as the ascending triangle pattern develops further, supported by the rising trend line from 2020 lows. With VWAP positive, the near-term bias remains bullish. The key hurdle to a breakout higher will be the .9097 resistance level (yearly pivot) which bulls will need to clear for any upside move to gain proper momentum.</p>
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