Bank of England takes the limelight, for now

The markets are all about the BoE today as the Central Bank meets in an hour from now. The BoE monetary policy announcement will be followed by the release of the MPC minutes and the quarterly inflation report. Continuing global economic concerns and a fall in the momentum in the UK’s domestic sector is likely to keep the BoE subdued. Interest rates are expected to stay put at 0.50% at today’s meeting, while the MPC votes for rate hikes is mostly in favor of the status quo being maintained.

Ian McCafferty is likely to be the lone dissenter, voting in favor of a rate hike and as such as the MPC vote count is expected to stay unchanged at 8 – 1.

While policy tightening seems to be the next major step for the BoE, inflation has remained a major issue for the Central bank as oil prices remain weak, albeit stabilizing in recent weeks. Unlike the Federal Reserve, which expects to hike rates at a gradual pace, the BoE’s rate hike might see a steeper curve on prospects that inflation may overshoot the 2% inflation target rate.

GBPUSD has been volatile in the past few sessions as the markets start to price in the probability of a rate hike from both the Central banks, with at least December being when the Fed could potentially lift off rates. The UK’s rate hikes are currently expected see a tightening from the Q1 or Q2 of 2016.

This week’s PMI survey reports showed an overall strong pick in the manufacturing, construction and services sector, all of which play an important role into the country’s economy. The first estimates for Q3 GDP was a soft print of 0.5%, but Q4 GDP is likely to see a pick up from a somewhat weak Q3 economic activity. Likewise, the UK’s labour market has also managed to improve steadily with the unemployment rate currently at 5.4% according to the data released by the ONS last month. A continued improvement in the UK’s unemployment rate could eventually see wages start to play role in inflation tightening.

GBPUSD – Long Term Analysis

The GBPUSD (1.538) has been largely trading within a range since May this year after prices briefly touched the highs of 1.586 and the lows of 1.5286. The weekly chart for GBPUSD showed a consolidation taking place in the form of a minor descending wedge pattern. A break out in either direction could see the momentum push prices to test the previous highs or the lows with a risk of reversal should prices fail mid way to the support or resistance levels.

However, the bias for a breakout to the upside is more favorable with prices currently trading near the upper end of the falling price channel on the weekly charts and the rally to 1.586 shows confluence as a being a major resistance levels that could be retested. To the downside, a break below 1.5286 could however see the potential for a sharper decline which could see an eventual test to previous lows at 1.4628 in the longer run.