The Australian dollar was 0.7% higher on the day against the Pound after the Bank of England surprised the market again yesterday with another interest rate cut to 0.1%.
The AUD v GBP pair was trading at 0.5035 in the European trading session and the BoE also ramped up its stimulus with an extra £200 billion of bond purchases.
UK interest rates cut again as BoE feels pressure
The Bank of England’s rate cut was a first policy move by the new governor Andrew Bailey, who cut rates from 0.25% to 0.1% and increased the banks’ stimulus to a total pf £645 billion.
The BoE followed other central banks with an emergency meeting as fears grow over the effects of the virus on the UK economy, with many employees at risk of unemployment. The new governor warned Britain faced an economic emergency caused by the Coronavirus and further measures would likely be needed to prevent further disruption.
The airline industry has been hit hard and pubs and hospitality businesses face widespread redundancies, with closures set to happen as early as this weekend. Many have already voluntarily closed their doors.
UK government looking at further moves to support the economy
The UK government is looking at further action and legislation to try and support a weakening economy, which includes company bailouts.
Chancellor Rishi Sunak told MPs, “There may well be an argument for the taxpayer, through the state, to step in and provide some short-term liquidity or other financing support to a private business”.
The chancellor’s comments came as fears a prolonged crisis could be disastrous for car manufacturers and steel industries. Honda, BMW and Toyota have been the latest companies to close European plants, leaving Jaguar Land Rover as the last major car company operating in the UK. Work at plants responsible for 1m of the UK’s annual output of 1.5m cars halted, with more than 20,000 staff sent home temporarily.
The BoE’s governor also took aim at stock market short-sellers after the heavy selling on the key indices in the last weeks. Stocks were higher on Friday and a near-term base may be building to remove some of the recent panic. In the AUD v GBP currency outlook, the 0.5000 level has been stubborn and the rally on the BoE actions could be a catalyst for a recovery in the Aussie.
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