The British pound is recovering on Thursday after slumping to its lowest level against the US dollar in 35 years. The pound has plunged more than 12% year-to-date, driven by the COVID-19 global pandemic that has caused a massive selloff on the FTSE and forced the government and central bank to act.
On Thursday, the Bank of England (BoE) slashed rates to 0.1% and boosted its quantitative easing stimulus package. The central bank plans to purchase £200 billion ($233 billion) of UK government and corporate bonds, a move that will reduce the cost of borrowing and pump liquidity into the system.
This comes one week after the central bank reduced rates from 0.75% to 0.25%.
Andrew Bailey, the head of the BoE, said the measures were introduced to calm financial markets spooked by rumors that London would be forced into complete lockdown for several days.
The obvious increase in the pace and severity of Covid-19, which has built during the week, was something we had to assess and respond to, we can’t wait for the hard economic data before we act.
I talk to central bank governors most days and while we make decisions with reference to our own mandates, it is not a surprise that we all are coming to the same conclusion [over what to do].
By throwing everything the central bank has at the coronavirus outbreak, the FTSE and the pound reacted positively. The FTSE settled 1.35% higher to 5,165.84, while the pound rebounded after falling to its lowest level against the greenback since 1985. The pound’s 10% drop in March is being attributed to the pandemic and the global fight for dollars amid a liquidity crunch.
On the data front, the January unemployment rate edged up 0.1% to 3.9%, higher than the median estimate of 3.8%. Average earnings excluding bonus clocked in at an annual 3.1%, up from 2.9% in the previous week. The market had penciled in a reading of 3%.
The GBP/USD currency pair jumped 0.35% to 1.1656, from an opening of 1.1614, at 16:46 GMT on Thursday. The GBP/EUR advanced 2.41% to 1.0899, from an opening of 1.0640.