GBP/USD Unfazed as BoE Opts For Status Quo, EU Referendum Nears
- BoE keeps rates unchanged at 0.50% by a unanimous decision
- “Brexit” risks adverse spill-overs to the global economy.
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The British Pound was little changed versus the US Dollar (at the time this report was written) after today’s Bank of England (BoE) rate decision saw interest rates unchanged at 0.50%, as was expected by economists.
The Monetary Policy Committee (MPC) voted unanimously 9-0 to maintain the Bank rate at 0.50%, as in the previous meeting.
The MPC also voted unanimously to maintain QE bond purchase at a total of £375b billion.
With the decision highly expected, attention quickly turned to the meeting minutes and the vote count.
The MPC said that based on the assumptions set out in the May report (in which the UK opts to remain in the EU), it is more likely than not that Bank Rate will need to be higher by the end of the forecast period.
The bank said that a vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise.
The MPC added however that through financial market and confidence channels, there are also risks of adverse spill-overs to the global economy.
Tuesday's inflation data revealed once again that the BoE is far from reaching its mandate target of 2%. This might imply that even in a "normal” environment (one without a possible “Brexit”) the central bank might have been seen keeping policy unchanged.
The BoE clearly stated that they will interpret incoming data more cautiously because of the upcoming referendum. The entirety of the Bank's projections is based around assumptions of conditions in which the UK remains in the EU. Taking this into consideration; it didn’t make much sense for the central bank to move on rates before an event that could potentially change the entire outlook.
As this was widely expected, it might help to explain why the British Pound was little changed versus the US Dollar.
GBP/USD 5-Minute Chart: June16, 2016
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@DailyFX.com
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