After two days full of economic releases from the UK, including the inflation data and the jobs report, which came in with mixed outcomes, we will be concentrating on the Bank of England decision later today.
The decision will be released at 11:00 GMT+ / 15:00 Dubai Time, which include the Official Bank Rate, Asset Purchases Facility, Monetary Policy Summary, MPC Official Bank Rate Votes and MPC Asset Purchases Facility Votes.
In General, the estimates points to no change, whether for the Official Bank Rate which stands at record low of 0.25% and the Asset Purchases Facility at 345B.
As for the MPC Meeting Minutes, the estimates points to a possible change in the official bank rate votes to 2-0-7 instead of 2-0-6 in the previous meeting, which would be the key for today’s decision.
What Matter’s The Most?
In today’s decision, traders and investors will be looking for more clues from the Bank of England regarding the ongoing QE and the future of the official cash rate.
Recently, we saw a notable rise in inflation, which spiked to the highest level since 2012. However, the wages growth came in with a disappointment yesterday, despite the fact that the estimates were to advance further.
With no wages inflation, this means that the Bank of England might have more time before raising rates. But what matter’s the most in today’s decision and the meeting minutes is the members votes.
There were two members voted in favor to raise the interest rate by 25bps in the previous meeting. The meeting before that, there were three members voted to raise the official cash rate as well.
However, since inflation is at the highest level since 2012, there is a high possibility that more members will be voting in favor to raise the rates, before it’s too late, especially that growth is still weak and weaker than the Bank of England target.
The less likely scenario in today’s decision is to keep the current policy unchanged, in addition to keep the votes unchanged as well, which might not have a notable impact on the markets.
What Happens If The Votes Changes?
This is the key for the British Pound, yesterday GBPUSD slipped followed by the disappointment of the wages growth and closed yesterday’s trading below 1.3225 support area, which eases the bullish outlook for now.
However, if the BOE members surprised the markets with 3 votes to raise the interest rate by 25bps. The British Pound is likely to recover yesterday’s losses easily, meaning, 1.3330 would be the next stop, followed by 1.3360’s.
On the other hand, if the members voted anonymously to keep the current policy unchanged, this would be the worst case scenario for the British Pound, which would lead to another leg lower, possibly toward 1.3150’s followed by 1.31.
The technical indicators on the daily chart are already overbought and crossed over to the downside once again during yesterday’s trading, which would suggest the downside move more than the upside. Yet, Fundamentals might change everything.
Nour Eldeen Al-Hammoury