Sterling Extremely Volatile After BoE Emergency Interest Rate Cut, Disappointing GDP

The Great Britain pound was extremely volatile today. The main reason for the currency’s sharp moves was an emergency interest rate cut from the Bank of England. The sterling sank immediately after the announcement, recovered quickly afterward but backed off a bit after a release of a bunch of disappointing macroeconomic reports, including GDP print.
The BoE surprised markets by announcing an emergency interest rate cut by 50 basis points to 0.25%. While a cut was not unexpected, its size was at the upper limit of analysts’ expectations. Furthermore, market participants were surprised that the central bank made a decision before the government unveiled a new budget. The bank also reduced the UK countercyclical capital buffer rate from 1% to 0% of banks’ exposures to UK borrowers.
Unsurprisingly, the sterling tumbled after the announcement. But the currency demonstrated unexpected resilience, quickly recovering after the initial slump. Analysts speculated that the pound got support from the BoE announcement in its policy statement that it will work with the Treasury to help in mitigating the financial impact of the coronavirus outbreak:

The Bank is coordinating its actions with those of HM Treasury in order to ensure that our initiatives are complementary and that they will, collectively, have maximum impact, consistent with our independent responsibilities.

Market participants were also hoping that the new UK Chancellor of the Exchequer Rishi Sunak will announce some sort of a relief package when he unveils the first post-Brexit budget later today.
As for Britain’s macroeconomic data, the Office for National Statistics reported that gross domestic product showed no growth in January from December. That is compared with the predicted increase of 0.2% and the 0.3% rate of growth registered in the previous month. Industrial production fell 0.1% in January from the previous month, whereas experts had promised an increase by 0.3%. Manufacturing expanded by 0.2%, in line with expectations.
GBP/USD rose from 1.2880 to 1.2916 as of 11:29 GMT today. EUR/GBP was up from 0.8758 to 0.8776, touching the high of 0.8847 intraday. GBP/JPY slipped from 135.60 to 135.45, while its daily high was at 136.53 and the low was at 133.96.

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