Forex Trading Library

Bank of England Decision Ahead: Possible Scenarios

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After the Federal Reserve had decided to raise the fed fund rate by 25bps as widely expected, another central bank decision is ahead of us, which set to have another wave of volatility in the coming hours. Before the start of the US session, the Bank of England will announce its decision side by side with the latest MPC meeting minutes, in today’s article, we will take a look at the possible scenarios and how GBP pairs may react.

Definition

Official Bank Rate: Interest rate at which the BOE lends to financial institutions overnight. The rate decision is usually priced in the market, so it tends to be overshadowed by the Monetary Policy Summary, which is focused on the future.

Why Trades Follow Such Event?

MPC Official Bank Rate Votes: the vote is reported in an ‘X-X-X’ format – the first number is how many MPC members voted to increase interest rates; the second number is how many voted to decrease rates, and the third is how many voted to hold rates.

The BOE’s MPC meeting minutes contain the interest rate vote for each MPC member during the most recent meeting. The breakdown of votes provides insight into which members are changing their stance on interest rates and how close the committee is to enacting a rate change in the future.

Monetary Policy Summary: It’s among the primary tools the MPC uses to communicate with investors about monetary policy. It contains the outcome of their vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes.

Possible Scenarios

For the past few weeks, the economic releases from the UK were positive and encouraging. Some of the data came in much better than expected, including the labour market data and inflation, which could be good news for the Bank of England.

Yet, the Bank of England is expected to keep the current policy unchanged, given the fact that the Brexit effect is not there yet, and might even take a long time, especially of the House Of Representatives wins the court case against the government.

However, the Bank of England is very close to its inflation target, therefore, we suspect a balanced tone, with clear hints that the Bank of England will intervene according to the economic developments there.

GBP Trends

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After yesterday’s decline due to the Federal Reserve decision, GBPUSD is approaching another solid support which stands at 1.25. Traders should keep an eye on that level very carefully, as a breakthrough that support may clear the way for further declines ahead. Any dovish comments by the Bank of England today would grant another leg lower below that support, probably toward 1.2470’s and 1.2430’s.

Levels To Watch

Symbol S3 S2 S1 Pivot R1 R2 R3
GBPUSD 1.2293 1.2410 1.2487 1.2604 1.2681 1.2798 1.2875
EURGBP 0.8266 0.8305 0.8346 0.8385 0.8426 0.8465 0.8506
GBPJPY 143.48 144.30 145.68 146.50 147.88 148.70 150.08
GBPAUD 1.6653 1.6725 1.6845 1.6917 1.7037 1.7109 1.7229
GBPCHF 1.2629 1.2692 1.2755 1.2818 1.2881 1.2944 1.3007

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