The Bank of England Holds, GBP Pops, Again
Skerdian Meta • 2 min read
It´s all about the UK and Brexit today, isn´t it? A while ago, we had the UK High Court ruling against the decision from the British government to trigger Article 50. Now, the BOE (Bank of England) is in the spotlight.
They held this month´s meeting about an hour ago, while the BOE chairman Mark Carney is still on the wires talking about Brexit, the monetary policy, and inflation in general. Their meeting couldn´t come at a better time- right after the High Court ruling.
The BOE has been between a rock and a hard place since the Brexit referendum. They want to act in order to prevent any negative effects from Brexit, but on the other hand, the inflation is picking up fast due to higher oil prices and cheap Sterling. It´s been so tough for the chaps at the BOE that Carney can´t wait to leave the post. The mandate is two years but he´s leaving earlier from what I have heard.
Today, though, things went their way for the first time in a long time. The UK service sector data jumped to some very good levels this morning and an hour later comes the High Court decision. Now even Brexit is in question.
So, why should the BOE cut the interest rates further if the UK economy is back on track, particularly now that we don´t know if Brexit will happen? These were the two main reasons they cut the interest rates in August. If you remember, the UK economic data plunged deep into negative territory back then and the Brexit side had just won, which panicked the financial markets.
Well, the BOE guys seem to have some common sense; they left everything on hold and now Carney is saying that their monetary policy won´t automatically be affected by the Brexit vote. It means that the BOE will not act solely because of Brexit. Instead, they will try to adapt it to the shape of the UK economy. The second part of that sentence is mine but that´s the logic conclusion to the first part. I guess he had his speech prepared before the High Court ruling.
There goes the second 100 pip move today
In the meantime, the GBP pairs are getting another lift. GBP didn´t move a single pip when the upbeat UK service PMI numbers were released, so we assumed the forex market had priced in the BOE staying on hold. But looking at the GBP/USD chart, we can see that this forex pair surged about 100 pips higher for the second time today. Maybe a few stubborn forex traders thought that the BOE might ease again, despite the positive economic data from the UK. Perhaps the decision from High Court got some other forex traders excited.
As for our forex signal in GBP/USD, we remain in a dilemma whether to take it now, wait for 1.2600-50, or just leave it alone. The problem is that if Brexit gets overthrown again in the appeal, then this would be a huge shift. Anyway, we won´t rush into it; the coming trading sessions will clear the picture somewhat so we will think this over.