Last week the BoE hinted that negative rates are now under consideration. This revelation opened up immediate GBP selling. Although interest rates were kept unchanged at 0.10% it was this headline that brought GBP selling into the GBP: the Bank of England said the Monetary Policy Committee had been briefed on the BoE’s plans to explore how a negative bank rate could be implemented effectively.

This headline meant that money markets brought forward expectations on UK interest rates turning negative. Negative rates were now seen as appearing in Feb 2012 after the meeting vs March 2021 prior to the meeting.

The UK faces a number of risks. Not least is the recent surge in COVID-19 cases. News flow over the weekend showed a steady worsening of the outbreak and yesterday the UK’s Chief Medical Officer told PM Johnson that Britain is at a ‘critical point’ with case numbers heading in the wrong direction. In fact there could be as many as 50,000 new cases in the UK by October if present rates of infection continue. UK Ministers are now considering what new restrictions to put in place and when.

The risks are now steadily mounting for the UK with Brexit negotiations on a knife edge, job losses anticipated for the end of the UK furlough scheme and rising COVID cases to increase the chances of a national lockdown. As a result expect sellers on the GBPJPY pair in the coming days as long as this situation remains the base case.