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BoE Preview: Fresh Forecasts to Influence GBP/USD Outlook

BoE Preview: Fresh Forecasts to Influence GBP/USD Outlook

David Song, Strategist

- Bank of England (BoE) to Keep Benchmark Interest Rate at Record-Low of 0.25%.

- Will BoE Officials Show a Greater Willingness to Normalize Monetary Policy in 2017?

- Join DailyFX Market Analyst Martin Essex LIVE to Cover the BoE Rate Decision.

Trading the News: Bank of England (BoE) Interest Rate Decision

BoE Interest Rate Decision

Fresh updates coming out of the Bank of England (BoE) may undermine the recent appreciation in GBP/USD if the central bank shows a greater willingness to preserve the record-low interest rate throughout 2017.

Why Is This Event Important:

With Silvana Tenreyro joining the Monetary Policy Committee (MPC), the new board member may side with the majority amid the mixed data prints coming out of the U.K. In turn, the BoE may largely endorse a wait-and-see approach over the remainder of the year as ‘the economy was expected to operate with a small degree of spare capacity for most of the three-year forecast period.’

However, Governor Mark Carney and Co. may adopt a more hawkish tone as ‘the inflation overshoot relative to the target could be more pronounced than previously thought,’ and a growing number of BoE officials may vote for a rate-hike as ‘the withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive.

Impact that the BoE rate decision has had on GBP/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN

2017

06/15/2017 11:00:00 GMT

0.25%

0.25%

+43

+57

June 2017 U.K. Bank of England (BoE) Interest Rate Decision

GBP/USD 10-Minute Chart

GBP/USD Chart

The Bank of England (BoE) voted 5 to 3 to retain the record-low interest rate in June, with Kristin Forbes, Ian McCafferty and Michael Saunders voting for a 25bp rate-hike as ‘inflation was projected to overshoot the target by more than previously expected, and to remain above it throughout the three-year forecast period.’ Nevertheless, it seems as though the majority of the BoE remains in no rush to normalize monetary policy as ‘A slowdown in household consumption, and GDP as a whole, had recently begun,’ but a growing number of Monetary Policy Committee (MPC) officials may chance their tune over the coming months as ‘the withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive.’ The British Pound gained ground following the growing dissent within the BoE, with GBP/USD climb back above the 1.2700 handle to end the day at 1.2751.

How To Trade This Event Risk(Video)

Bearish GBP Trade: Majority of BoE Endorses Wait-and-See Approach

  • Need a red, five-minute candle following the fresh BoE updates to consider a short GBP/USD trade.
  • If market reaction favors a bearish British Pound trade, sell GBP/USD with two separate lots.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish GBP Trade: Governor Carney and Co. Prepare U.K. Households for Rate-Hike

  • Need a green, five-minute GBP/USD candle to favor a long British Pound trade.
  • Carry out the same setup as the bearish Sterling trade, just in reverse.

Potential Price Targets For The Release

GBP/USD Daily Chart

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD may continue to climb to fresh 2017-highs as the Relative Strength Index (RSI) flashes a bullish trigger and threatens the bearish formation carried over from May, with the next topside hurdle coming in around 1.3300 (100% expansion) to 1.3370 (78.6% expansion) followed by 1.3445 (September 2016-high) to 1.3460 (50% retracement).
  • However, a bearish reaction to the BoE rate decision may spur a move back towards 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement), with the next region of interest coming in around 1.2950 (23.6% retracement).
  • Interim Resistance: 1.3460 (50% retracement) to 1.3481 (July 2016-high)
  • Interim Support: 1.2630 (38.2% expansion) to 1.2680 (50% retracement)

GBP/USD Retail Sentiment

GBP/USD Sentiment

Track Retail Sentiment in Real-Time with the New Gauge Developed by DailyFX

Retail trader data shows 35.3% of traders are net-long GBP/USD with the ratio of traders short to long at 1.84 to 1. In fact, traders have remained net-short since June 23 when GBP/USD traded near 1.27744; price has moved 3.6% higher since then. The number of traders net-long is 3.6% lower than yesterday and 22.5% lower from last week, while the number of traders net-short is 5.3% higher than yesterday and 8.6% higher from last week.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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

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