Talking Points
- BoE leaves policy unchanged but changes GDP, inflation forecasts.
- Sterling falls post-release.
- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for next week on the DailyFX Webinar Calendar.
The Bank of England’s (BoE) Monetary Policy Committee (MPC) voted by a majority of 7-1 to leave monetary policy unchanged at today’s ‘Super Thursday’ meeting, as expected. Interest rates remain at 0.25%, UK government bond stock – gilts - at GBP435 billion and the total of corporate bonds at GBP10 billion. The Monetary Policy Committee, now eight members instead of nine after Charlotte Hogg resigned in March, voted by a majority of 7-1 compared to 8-1 at the previous meeting, to keep rates on hold and 8-0 to keep gilts and corporate bond totals unchanged.
The minutes of the latest meeting concluded,
“On the whole, the Committee judges that, if the economy follows a path broadly consistent with the May central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections.”
The latest Quarterly Inflation Report (QIR), a three-monthly update of the UK economy, showed the BoE cutting 2017 GDP to 1.9% from a prior 2%, while it also raised this year’s inflation expectations to 2.7% from a prior 2.4%.
GBP fell on the release of the report, hitting a low of 1.28820 after trading around 1.29240 pre-release.
Chart: GBPUSD 5-Minute Timeframe (May 11, 2017).
Earlier in the session, the latest hard data showed the UK economy slowing down as fears over the upcoming Brexit talks continue to weigh on UK businesses. Manufacturing and industrial data for March both fell more than forecast, and the trade gap widened, confirming the recent weak Q1 UK GDP print of just 0.3%.
And GBP may have further to fall looking at current client positioning.
Retail trader data shows 42.6% of traders are net-long with the ratio of traders short to long at 1.35 to 1. In fact, traders have remained net-short since Apr 12 when GBPUSD traded near 1.24201; price has moved 4.1% higher since then. The number of traders net-long is 19.9% higher than yesterday and 0.3% higher from last week, while the number of traders net-short is 5.5% lower than yesterday and 2.4% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
IG Client Sentiment Data – What is it and How to use it in your Trading – See Here
--- Written by Nick Cawley, Analyst
To contact Nick, email him at nicholas.cawley@ig.com
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