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Trade the News: GBP Price Depends on Brexit, Not UK Interest Rates

Trade the News: GBP Price Depends on Brexit, Not UK Interest Rates

Martin Essex, MSTA, Analyst

GBP price and UK interest rates analysis:

  • The Bank of England’s Monetary Policy Committee will leave all its policy settings unchanged today – and for many months to come.
  • Traders in GBP, the FTSE 100 and UK Gilts should therefore concentrate on Brexit developments, which are driving UK asset prices and will continue to do so.

BoE to leave UK interest rates unchanged

Barring a major surprise, the Bank of England’s rate-setting Monetary Policy Committee will leave UK Bank Rate at 0.75% today and its asset-purchase program unchanged. Traders in GBPUSD, GBP against other currencies, the FTSE 100 and UK government bonds (Gilts) can therefore safely ignore the Bank and continue to concentrate on Brexit developments.

The decision, at 1100 GMT (1200 BST), will be accompanied by the minutes of the MPC meeting, which will almost certainly show a 9-0 vote by MPC members to leave rates where they are. However, there will be no quarterly Inflation Report to coincide with the decision and no press conference by Bank of England Governor Mark Carney.

I shall be covering the meeting in a free live webinar, starting at 1045 GMT, which you are welcome to sign up for. In the meantime, here’s what to expect:

UK economic calendar for September 13.

Source: DailyFX Economic Calendar

UK interest rate expectations

As the table below shows, pricing in the overnight index swaps market implies that traders are expecting UK Bank Rate to remain at 0.75% for around a year more, with the next move an increase. That, though, will almost certainly depend on how Brexit develops between now and then.

UK interest rate expectations.

Source: Thomson Reuters Eikon

Watch out for Brexit News

With interest rates on hold, there is little doubt that GBPUSD and the FTSE 100 will continue to be buffeted by Brexit developments. In the last few days, there has been speculation about a move by hard-line Members of Parliament in Prime Minister Theresa May’s ruling Conservative Party to oust her as their leader, and therefore as PM - although they seem to have now backed down.

In addition, Jean-Claude Juncker, the European Commission President, said Wednesday that the EU would not compromise on the key Brexit withdrawal terms, although he reaffirmed an offer of a close future partnership. His comments came in a keynote State of the European Union address to the European Parliament.

Looking ahead, the UK Brexit Secretary, Dominic Raab, is in Brussels tomorrow for fresh talks with Michel Barnier, the EU Chief Negotiator, after attending a Cabinet meeting today where UK ministers will discuss no-deal contingency planning.

Nonetheless, GBPUSD continues to trade above the psychologically-important 1.30 level and is clawing back some of its recent losses.

GBPUSD Price Chart, Daily Timeframe (June 6 – September 13, 2018)

Latest GBPUSD price chart.

Chart by IG

Trading the news: Bank of England meeting

From a trading perspective, therefore, the only points to look out for will be any mentions of Brexit in the MPC minutes – and even these would be unlikely to move UK assets far. However, a split vote to keep rates unchanged could be market-moving.

As for levels to watch out for, you may find the following articles on DailyFX useful:

Resources to help you trade the forex markets

If you’d like to learn how to trade like an expert, you can read our guide to the Traits of Successful Traders. Some of the key lessons are:

- Successful traders cut losses, and let profits run,

- Successful traders use leverage effectively, and

- Successful traders trade at the right time of day.

For more help to trade profitably, check out the IG Client Sentiment data

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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

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