European session review: GBP weakens as expectations for more policy easing from BoE heightened after announcement of new national lockdown

GBP fell against most of its major rivals, in the European session on Wednesday, weighed down by raised expectations that the Bank of England (BoE) would provide more policy easing to cushion the damage to the UK's economy from a new national lockdown, which was announced by Prime Minister (PM) Boris Johnson earlier this week. 

While addressing the House of Commons on Wednesday, Boris Johnson noted that the end of the lockdown won't be “a big bang” but a gradual unraveling. He also promised MPs that schools will be the first to reopen when the lockdown is lifted, adding that this could happen some time in mid-February.

Many market participants now believe that the BoE could take benchmark interest rates into negative territory at its May meeting.

Investors also digested the final release of the UK December services PMI, which showed that the activity in the service sector fell more than forecast in December. According to the latest survey from IHS Markit, the final IHS Markit/Chartered Institute of Procurement & Supply (CIPS) services Purchasing Managers' Index (PMI) rose to 49.4 in December from 47.6 in November. A score below 50 indicates contraction in the sector. The reading was below a “flash” estimate of 49.9. Economists had forecast the reading to remain unrevised.