GBP Falls as BOE Leaves Policy Unchanged, Cuts Growth Forecasts
- BoE sees cuts 2017 growth to 1.7% from 1.9% and 2018 to 1.6% from 1.7%.
- Inflation forecasts are left broadly unchanged.
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The Bank of England (BoE) left monetary policy unchanged Thursday but announced that it would close the drawdown period for the Term Funding Scheme by the end of February 2018. The MPC voted by a majority of 6-2 to leave monetary policy levers untouched. At the last meeting three members, Ian McCafferty, Michael Saunders and, the now departed, Kristin Forbes all voted for an immediate rise. Ms Forbes has been replaced by ex-LSE professor of economics Silvana Tenreyro.
The Bank Rate remains at 0.25%, along with the Asset Purchase Target at GBP435 billion and the Corporate Bond Target at GBP10 billion.
The International Monetary Fund (IMF) recently gut its growth forecasts for the UK after a ‘tepid performance’ so far in 2017. The fund trimmed its 2017 GDP forecast to 1.7% from a prior 2.0% but left its forecast for 2018 unchanged at 1.5%. The IMF warned however that the ultimate impact on the UK economy from Brexit remains unclear.
Sterling fell on the release after having hit a fresh 2017 high against the USD of 1.32679 pre-release. Cable fell back to 1.31670 as traders see little likelihood of higher UK rates in the next 6-9 months.
Chart: GBPUSD Three Minute Timeframe (August 3, 2017)
Investors however may be pleased to see GBPUSD fall as the latest retail trader data shows 36.1% of traders are net-long with the ratio of traders short to long at 1.77 to 1. In fact, traders have remained net-short since Jun 23 when GBPUSD traded near 1.27744 and the price has moved 3.7% higher since then. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bullish contrarian trading bias.
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--- Written by Nick Cawley, Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.