Bank of England: How Will This Decision Impact The Market?

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The Bank of England is set to announce its latest decision today at 11:00 GMT+, which includes the Official Bank Rate, Asset Purchase Facility, Monetary Policy Summary, and the MPC meeting minutes, which includes the policy makers’ votes.

Why This Is Important?

The Bank of England changed its outlook and its policy right after the Brexit referendum. The bank was talking about raising rates soon before the vote. After the referendum, the bank decided to cut the rates and increase its asset purchases to support the economy because the Brexit was believed to cause a notable negative complication in the coming months and years. Today’s decision will give traders and investors more clues regarding the upcoming months’ policies, at least until the end of the year, which in return will have a notable impact on GBP pairs and the stock market, including FTSE100.

What To Watch Most Carefully

The most important thing that traders and investors need to watch in today’s statement is whether the bank is thinking about expanding its stimulus package over the next few months, either by cutting the rates to zero and/or by increasing the asset purchases facility above the current 435B pounds.

Current Market Expectations 

The majority of economists currently predict no change in today’s decision. The Official Bank Rate is likely to remain at its record low at 0.25%. The Asset Purchase Facility is also expected to remain at 435B pounds. Moreover, the MPC vote is expected to be anonymous in favor of the decision, with no expectations of any member to be against the current policy.

Surprises Are Always Possible

The possibility of a surprise by the Bank of England is very minimal today. What do I mean by surprise? There is a small possibility that the Bank of England may cut the cash rate further in this meeting or even increase its asset purchase facility. This is primarily due to the recent economic releases, especially the Services and Manufacturing figures which showed notable stabilization. Moreover, the inflation data is stable and not as bad as the markets had anticipated. Therefore, the Bank of England might switch to what we call the “wait and see” mode before taking any new measures.

How Will This Decision Impact The Market?

There are various scenarios for each and every central bank decision. It is not black or white. There are many factors involved, such as the decision itself, the bank’s tone and the markets’ future expectations for what could happen after the announcement. Here I will put together the most possible scenarios.

  • Keep the current policy unchanged, with hints for further action in the coming months = Dovish
  1. This is considered to be negative for GBP and positive for stocks
  2. GBP might extend its decline to test new support areas, continuing this week’s downtrend.
  • Surprise the market with 25bps rate cut and increase asset purchases to 500B = Dovish
  1. This would have a notable negative impact on GBP
  2. FTSE100 would rally by at least 1%
  • Keep the current policy unchanged with a balanced tone and switch to the “wait and see” mode
  1. This will most likely have a slight impact on the market
  2. GBP pairs might trade within a tight range until the beginning of the US session.

Support and Resistance

Symbol S3 S2 S1 Pivot R1 R2 R3
GBPUSD 1.3060 1.3098 1.3166 1.3204 1.3272 1.3310 1.3378
GBPJPY 132.92 133.89 134.73 135.70 136.54 137.51 138.35
GBPAUD 1.7455 1.7514 1.7617 1.7676 1.7779 1.7838 1.7941
EURGBP 0.8406 0.8443 0.8472 0.8509 0.8538 0.8575 0.8604

 

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Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.