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Forex News: Pound Rebounds After Bailey Cools Negative Rate Expectation

Pound Rebounds After Bailey Cools Negative Rate Expectation

09/22/2020 - 08:08:00 (RTTNews)

(RTTNews) - The pound recovered from its early losses against its major counterparts in European deals on Tuesday, after Bank of England governor Andrew Bailey played down hopes of taking interest rate negative in the immediate future.

Speaking at a webinar hosted by the British Chamber of Commerce, Bailey said that last week's BOE statement did not imply about the possibility of using negative rate in the U.K.

"We have looked hard at the question of what scope there is to cut interest rates further and particularly negative interest rates."

The BOE governor said the use of negative rates in other countries had a "mixed" outcome as its effectiveness relies on the structure of the banking system and the timing of the move.

Bailey, however, asserted that a negative policy rate was part of the central bank's toolbox and the central bank required to know how to implement it.

European stocks rebounded after suffering their biggest drop since June the previous day on concerns over coronavirus restrictions and diminishing prospects for economic stimulus.

Fed Chair Jerome Powell and U.S. Treasury Secretary Steven Mnuchin will speak later in the day at a Congressional panel.

The pound rose to 134.39 against the yen, after dropping to a 2-1/2-month low of 133.05 at 3:45 am ET. If the pound rises further, it may challenge resistance around the 138.00 level.

The pound appreciated to 1.2867 against the greenback and 1.1763 versus the franc, up from its early European session's 2-month low of 1.2712 and a 1-week low of 1.1655, respectively. Next near term resistance for the pound is seen around 1.31 against the greenback and 1.19 versus the franc.

The U.K. currency turned positive against the euro, with the pair trading at 0.9144. This followed a 1-week low of 0.9220 set at 3:45 am ET. The pound is likely to find resistance around the 0.90 level.

Looking ahead, Eurozone flash consumer sentiment index for September is set for release at 10:00 am ET.

Simultaneously, U.S. existing home sales for July will be featured.

At 10:30 am ET, Federal Reserve Chair Jerome Powell will testify on the the CARES Act before the House Financial Services Committee in Washington DC.

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