London Stocks Rally but Sterling Stranded

GBP price, FTSE 100, Brexit news and analysis:

  • Speculation that the world’s major central banks will ease monetary policy to counter the economic threat of the coronavirus outbreak are benefiting the FTSE 100 along with other stock markets.
  • However, hopes that governments will follow suit will likely be dashed and GBP/USD continues to sit close to the 1.28 level.
  • The UK is taking a tough line on trade talks with both the EU and the US but for now Brexit is taking a back seat in the Sterling markets.

FTSE 100 rallies as GBP/USD trades sideways

What appears to be coordinated action by the world’s major central banks to counter the economic impact of Covid-19 will likely continue to help stabilize global stock indexes, including London’s FTSE 100, but there could be some disappointment that the G7 governments seem less willing to act.

Among the central banks, a rate cut this month by the Federal Reserve is now fully priced in – with the markets suggesting a 39.8% chance of a half-point cut to 1.0%-1.5% and a 60.2% chance of an even deeper reduction to 0.75%-1.0%.

The markets are also inferring an 82.3% likelihood of a 10 basis points reduction in March by the European Central Bank and an 85.5% chance of a quarter-point March cut by the Bank of England. In the meantime, the Reserve Bank of Australia has already cut its official cash rate by 0.25 percentage points to a record low 0.5%.

Nonetheless, the G7 group of governments is not expected to make a direct call for fiscal easing in a statement due today or tomorrow, and that is holding back GBP/USD, which continues to hover around 1.28 with no clear sign of a sharp move either up or down.

GBP/USD Price Chart, One-Hour Timeframe (February 27 – March 3, 2020)

Chart by IG (You can click on it for a larger image)

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By contrast, the FTSE 100 is rallying after the recent sharp retreat in global stock markets and there is little to suggest any further sharp falls near-term.

FTSE 100 Price Chart, One-Hour Timeframe (February 25 – March 3, 2020)

Latest FTSE 100 price chart.

Chart by IG (You can click on it for a larger image)

Against this background, Brexit has ceased to be a factor in the Sterling markets for now despite signs that the UK will tray to strike a hard bargain in its trade talks with the US, matching its tough stance in negotiations on the future relationship between the UK and the EU.

We look at Sterling regularly in the DailyFX Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts

— Written by Martin Essex, Analyst and Editor

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