• Ken FX Freak

Bank of England rate decision – Thursday 2nd August 1200(London time)

Updated: Jul 31, 2018

A real nail biter for Mark Carney aka unreliable boyfriend

The Bank of England is expected to hike rates by 25BPS, moving the rate from 0.50% to 0.75%, which is 90% priced into the market. This one for the MPC is most certainly going to spark some controversy either way, as there are heavily weighted arguments for both sides.

General market observations

In terms of the key logical factors behind moving forward with raising rates are; a general improvement in wages, which is expected to start filtering through to the market causing upside inflationary pressures. Inflation has cooled quite drastically from the peak in December 2017 at an annual rate of 3.1%, which was the highest in nearly six years, compared to now 2.4%. Not moving forward now, may see those worryingly high inflation levels come back to the UK.

Ken FX Freak thoughts

Personally, I believe it is much too soon for the Bank of England to raise rates now, I feel this should be left until later in the year. Britain is going through an extremely turbulent time currently, given the Brexit palaver. In terms of economic data, I am not sure where to start here, but it is very lackluster, there hasn’t been one piece of data that has impressed the markets this year, it has all been below par to say the least. Other than an improvement in the labor market, the likes of; retail sales, manufacturing, services, construction sectors and GDP, have been weak, and yes all of that is heavily linked to the Brexit instability, so raising rates is dangerous for the economy.

GBP reaction

GBP is down 200 pips from the last rate decision, where the price did initially rally quite heavily on the anticipation of rate hikes for August, given the shift of member vote split from 7-2 to 6-3. It has lost ground since mainly on the political mess, but also doubts of a hike given all the instability and the recent cooling in inflation seen, with this being said, there is room for a decent rally for GBP. The pound has fallen over 1400 pips from the high of the year 1.4378 on 17th April down to the low of the year printed recently on 19th July at 1.2957. My upside target on a hike will be 1.3600.

Should the central bank not move forward with the expected rate hike, apart from all the press branding Mark Carney as the unreliable boyfriend again, look for a very fast move down towards the 1.26 handle.

My anticipated scenario, a dovish hike. The Bank of England to hike rates by 25BPS as anticipated, however there is an extremely cautious tone attached to the hike. They are to express their concerns with the political instability and uncertainty surrounding Brexit. I expect them to make it clear this is not part of an activate rate hiking cycle. Back in November 2017, they hiked by 25BPS, however made it clear is wasn't part of a series of hikes and they were cautious on the general economic outlook, particularity Brexit. On this occasion GBP/USD dropped around 200 pips, given the dovish hike.

GBP/USD daily chart view

Stay tuned

I will provide a rundown via IG live @kenfxfreak on Wednesday 2100 London time. On Wednesday 2nd August, I will be going on IG live after the rate decision from outside the Bank of England, just after 1200GMT once I have obtained full information.

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