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Brexit Briefing: UK Monetary Policy in Focus as Brexit Impact on GBP Fades

Brexit Briefing: UK Monetary Policy in Focus as Brexit Impact on GBP Fades

Martin Essex, MSTA, Analyst

Talking Points

- Brexit is taking a backseat to monetary policy for GBP traders this week.

- While taxation and immigration post-Brexit are in the news, it’s Thursday’s Bank of England policy decisions that will determine the direction of the British Pound.

Check out our new Trading Guide for GBP:it’s free and has been updated for the third quarter of 2017

For traders in the British Pound, this week is all about the Bank of England’s decisions on monetary policy Thursday rather than Brexit. The UK’s central bank is expected to leave all its monetary levers where they are currently but there are still many open questions for the BoE to answer.

The most important is how close its monetary policy committee is to hiking UK interest rates but traders should also be on the lookout for any signs that it’s more worried about above-target inflation, for any changes in the quarterly Inflation Report to the Bank’s projections for economic growth and inflation, and for whether there is now more or less consensus on the committee on how to proceed.

I’ll be covering the rate decision in a live webinar on Thursday at 1045 GMT, which you can sign up for here.

In the meantime, the latest Brexit news has been all about immigration and taxation. According to Philip Hammond, the Chancellor of the Exchequer, the UK has no intention of lowering taxes far below the EU average to attract business to the country – an interesting comment as he appeared to propose just that earlier this year.

As for immigration, Prime Minister Theresa May’s spokesman said the free movement of EU citizens to the UK will end in March 2019, seemingly making a “hard” Brexit more likely. Just last week Hammond said there should be no immediate changes to immigration rules when the UK leaves the EU – comments seen as him favoring a “soft” and more market-friendly Brexit.

For now, though, GBPUSD is moving higher as the Bank of England’s decisions on monetary policy approach,

Chart: GBPUSD Five-Minute Timeframe (July 31, 2017)

Brexit Briefing: UK Monetary Policy in Focus as Brexit Impact on GBP Fades

Chart by IG

Markets

Index / Exchange Rate

Change (Exchange Hours/GMT Session Rollover)

Market Close/Last

FTSE 100

+0.03%

7,370

DAX

-0.38%

12,116

GBP/USD

+0.33%

1.3179

EUR/USD

+0.36%

1.1792

EUR/GBP

Unchanged

0.8946

Upcoming UK/EU Event Risk

Events

Date, Time (GMT)

Forecast

Previous

German Unemployment Change (Jul)

Aug 1, 0755

-5K

-7K

German Unemployment Rate s.a. (Jul)

Aug 1, 0755

5.7%

5.7%

Euro-Zone Manufacturing PMI (Jul F)

Aug 1, 0800

56.8

56.8

UK Manufacturing PMI (Jul)

Aug 1, 0830

54.5

54.3

Euro-Zone GDP s.a. (QoQ) (2Q A)

Aug 1, 0900

0.6%

0.6%

Euro-Zone GDP (YoY) (2Q A)

Aug 1, 0900

2.1%

1.9%

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

For help to trade profitably, check out the IG Client Sentiment data

And you can learn more by listening to our regular trading webinars; here’s a list of what’s coming up

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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