GBP/USD to Take Cues From BoE Vote Count, Inflation Report
- Bank of England (BoE) Widely Expected to Preserve Current Monetary Policy.
- Will There Be Another Unanimous Vote Within the Monetary Policy Committee (MPC)?
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Trading the News: Bank of England (BoE) Interest Rate Decision
The Bank of England (BoE) interest rate decision may dampen the appeal of the British Pound and generate a near-term selloff in GBP/USD should the central bank trim its economic forecast and continue to endorse a wait-and-see approach.
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Why Is This Event Important:
However, bright signs coming out of the U.K. economy may ultimately spark a dissent within the Monetary Policy Committee (MPC), and the pound-dollar may continue to retrace the sharp decline from the previous year should the BoE highlight a tightening race with the Federal Reserve to normalize monetary policy.
Expectations: Bearish Argument/Scenario
|Retail Sales ex Auto Fuel (MoM) (JUN)||0.4%||-0.2%|
|Jobless Claims Changes (JUN)||-9.0K||7.0K|
|Consumer Price Index Core (YoY) (JUN)||0.9%||0.8%|
Subdued price growth along with the recent slowdown in private consumption may encourage another unanimous vote within in the committee, and a further delay of the normalization cycle may produce near-term headwinds for the sterling as it drags on interest rate expectations.
Risk: Bullish Argument/Scenario
|Mortgage Approvals (JUN)||66.0K||66.6|
|Gross Domestic Product (QoQ) (2Q A)||0.7%||0.7%|
|CBI Business Optimism (JUL)||1||8|
However, improved confidence paired with the narrowing slack within the real economy may prompt a split-vote within the MPC, and the fresh developments may pave the way for a higher-high in GBP/USD as the pair retains the upward trend carried over from April.
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How To Trade This Event Risk(Video)
Bearish GBP Trade: BoE Votes Unanimously to Retain Current Policy
- Need red, five-minute candle following the rate decision to consider a short GBP/USD trade.
- If market reaction favors selling Cable, short GBP/USD with two separate position.
- Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is hit, set reasonable limit.
Bearish GBP Trade: MPC Highlights Growing Dissent/Greater Willingness to Normalize Policy
- Need green, five-minute candle to favor a long GBP/USD trade.
- Implement same setup as the bearish sterling trade, just in the opposite direction.
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- May see GBP/USD continue to retrace the decline from July 2014 should the BoE highlight a tightening rate with the Federal Reserve to remove the record-low interest rate.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since July 1, with the ratio currently sitting at +1.25 as 56% trades are long.
- Interim Resistance: 1.5750 (23.6% retracement) to 1.5780 (38.2% retracement)
- Interim Support: 1.5330 (78.6% retracement) to 1.5350 (50% retracement)
Impact that the BoE rate decision has had on GBP during the last meeting
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|JUL 2015||07/09/2015 11:00 GMT||0.50%||0.50%||+17||-4|
July 2015 Bank of England (BoE) Interest Rate Decision
As expected, the Bank of England (BoE) kept the benchmark interest rate unchanged for another month in July, with the central bank refraining from releasing a policy statement yet again. Even though BoE Governor Mark Carney continues to prepare U.K. households and businesses for higher borrowing-costs, the ongoing series of unanimous votes to retain the current policy may continue to dampen the appeal of the British Pound as market participants push back bets for a rate hike. The initial market reaction was limited, with GBP/USD holding a tight range, but the sterling struggled to holds it ground throughout the day as it closed at 1.5378.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail firstname.lastname@example.org. Follow me on Twitter at @DavidJSong.
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