Top Story

GBP/USD: Will the BOE hint at an August hike?

Markets have calmed down since yesterday’s big risk asset selloff, but that doesn’t mean that there’s nothing exciting on the horizon for traders. Namely, tomorrow’s BOE meeting should provide some important insights into Mark Carney and company see policy unfolding moving forward.

 At its last meeting, the Bank of England voted 7-2 to leave interest rates unchanged at 0.5% and cut its inflation forecasts for the next three years. This dovish revision to the economic outlook prompted traders to sell pounds as they considered the possibility that the central bank may not even raise interest rates at all this year.

Heading into this week’s meeting, expectations are that little has changed, but as we all know, Mark Carney’s “unreliable boyfriend” nickname is well-earned given his tendency to frequently revise his views and surprise markets.

While it’s highly unlikely that we see the central bank raise interest rates at this meeting, it could use tomorrow’s statement and press conference to prepare traders for a rate hike in its August meeting. For instance, if another BOE member (Haldane?) dissents in favor of a rate hike, it would bring balance of the MPC closer to even between hawks and doves/centrists. Traders will also key in on how the committee views the recent tick lower in inflation (to 2.4%) relative to the near-identical rate of wage growth (2.5%)

Of course, the big question mark when it comes to the BOE (and really anything related to the UK economy) is Brexit. With Article 50 talks outlining the structure of Brexit set to conclude in October, will the BOE try to “squeeze in” a rate hike before Brexit eclipses all other considerations? For what it’s worth, futures markets have priced in a 46% chance of interest rate increase in the BOE’s August meeting, and any changes to that number could have a significant impact on pound sterling.

Turning our attention to GBP/USD, cable has been in an established downtrend since peaking near 1.4400 back in mid-April. After a brief countertrend bounce off 1.3200, rates have rolled over once again to hit a fresh 7-month low below that level ahead of tomorrow’s BOE meeting. If Carney and company strike a more hawkish tone, GBP/USD could see a relief rally back toward 1.3300 or even 1.3400 as traders fear a “false break” below 1.3200. Conversely, a steady-as-she-goes statement the throws cold water on the prospect of a hike in August would likely take GBP/USD to a new year-to-date low around the psychologically-significant 1.3000 level.

GBP/USD Chart

Source: TradingView, FOREX.com


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT