British Pound Volatility Likely on Brexit Ruling, BOE Rate Decision
- British Pound volatility threatened on Brexit ruling, BOE rate decision
- UK High Court to announce if Parliament must approve A50 Trigger
- BOE growth outlook in focus as officials look through inflation uptick
All eyes are on the British Pound in European trading hours as heavy-duty event risk threatens to unleash breakneck volatility. First, the UK High Court will rule on whether or not Prime Minister Theresa May has to consult Parliament before triggering Article 50 of the Lisbon Treaty (A50), initiating Brexit proceedings. Next, the Bank of England will deliver a monetary policy announcement as well as updated Quarterly Inflation Report (QIR).
Inserting the mostly pro-EU legislature into Brexit decision-making process may upend the administration’s plan to begin formal negotiations by the end of the first quarter next year. In a dramatic scenario, it could even trigger an early election if obstinate MPs force Ms May to defend her mandate to execute Britain’s rupture with the regional bloc. Traders will have to weigh the risks of such uncertainty against hopes that Parliament will act as a bulwark against “hard Brexit” to come with a direction for the UK unit.
For its part, the BOE seems unlikely to alter the existing policy mix but traders will keen to parse the QIR for guidance on where things go from here. The central bank is likely to notch up its inflation outlook courtesy of the post-referendum Sterling plunge, but this seems of relatively little consequence considering Governor Carney and company have explicitly pledged to look through such an upswing. Updates to the projected growth path and its implications for stimulus expansion may be market-moving however.
The BOE has acknowledged that the economy has fared better than officials expected after the Leave campaign triumphed in June. Optimism has been decidedly restrained however amid worries that inherent transmission lags mean a slump in business activity will yet emerge as a potent headwind. The Pound may see significant weakness if this is highlighted as likely in the QIR, implying that further accommodation is on the horizon.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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