2020.10.2014:41:00UTC+00Pound Declines As BoE Vlieghe Backs Further Stimulus

The pound weakened against its major counterparts in the New York session on Tuesday, after a Bank of England policymaker supported considering negative rates as the recent rise in Covid-19 cases could dent the economic recovery from the pandemic.

In an online speech, Gertjan Vlieghe said that additional monetary stimulus may be needed as the outbreak poses downside risks to the economy.

It appears that the downside risks to the economic outlook are starting to materialize, he said. "The outlook for monetary policy is skewed towards adding further stimulus."

Since the negative interest rate has not been tried in the UK, there is uncertainty about its effectiveness, and the monetary policy committee is not at a point yet when it can reach a conclusion on this issue, the banker said.

According to Vlieghe, the risk that negative rates end up being counterproductive to the aims of monetary policy is low.

Although additional asset purchases remain an available policy tool, the effects of quantitative easing are state-dependent, and that a key channel through which QE works is by affecting expected future real interest rates, which are already very low, Vlieghe noted.

Worries about U.S. stimulus package remained, as the lawmakers struggled to reach an agreement before today's deadline.

U.S. House of Representatives Speaker Nancy Pelosi said that the two sides "continued to narrow their differences."

The pound hit 1.1722 against the franc, its lowest level since September 23. If the pound slides further, it may find support around the 1.15 mark.

Data from the Federal Customs Administration showed that Swiss exports grew at a faster rate in the third quarter.

Exports rose by a real 9.9 percent sequentially in the third quarter, after a 12.2 percent decrease in the second quarter.

The pound fell to near a 2-week low of 0.9148 against the euro, after rising to 0.9080 in early deals. The pound is seen locating support around the 0.94 level.

Data from Destatis showed that German producer prices continued to decline in September.

Producer prices were down 1 percent year-on-year, slower than the 1.2 percent decrease seen in August. Prices have decreased for the eighth consecutive month.

The pound reached as low as 1.2911 against the greenback, down from a high of 1.2979 seen at 5:00 am ET. On the downside, 1.28 is likely seen as its next support level.

In contrast, the pound was up against the yen, at 137.03. The next possible resistance for the currency is seen around the 138.00 level.