Aug 2 – Economic Events Outlook – How to Trade BOE Interest Rate Hike Today?
Arslan Butt • 2 min read
The British Pound remains in the limelight today as the Bank of England is widely expected to hike the rate by 25 base points to 0.75%. On the other hand, the dollar is supported after the Federal Reserve left the interest rates unchanged as broadly anticipated. Fed Chair Powell kept the market expectations unchanged for September, with an 80% chance for a rate hike on the cards.
In this update, we are specifically going to speak about expectations from the Bank of England and how to trade on the news release. Let’s begin…
Great Britain Pound – GBP
Bank of England’s Monetary Policy Decision – At 12:00 (GMT), the Official Bank Rate rate will be released. Honestly, the chances of a change in rate are almost 100%. BOE is widely expected to hike the rate from 0.50% to 0.75%.
I was analyzing the macroeconomic indicators of Britain. Their inflation remained stuck at 2.4%, retail sales failed to surprise in June, and with Brexit uncertainty, that’s rising my concern about the rate hike.
What happens if BOE decides not to hike the interest rate?
Well, the British Pound has already priced in most of the 0.75% rate hike. Let’s say, the BOE decides to keep the interest rate on hold, there is going to be a dramatic sell-off in the Pound. The GBP/USD can take a dip of approx 100 to 200 pips.
What happens if they actually hike the interest rates to 0.75%?
It will be a situation like ”buy the rumors sell the fact”. Upon the release of 0.75% interest rate, the odds of bearish reversals also remain high. First, there can be a bullish spike of 50 to 80 pips in the GBP/USD, but later the market can take a bearish reversal.
BOE Inflation Report – The UK is struggling with its inflation as it’s stuck at 2.4%, down from 3% back in Jan 2018. Let’s see what BOE has to say to about it. Usually, the inflation reports are important as the Bank declares its quarterly inflation outlooks but today it’s likely to be overshadowed by the BOE interest rate decision.
MPC Official Bank Votes – The BOE MPC meeting minutes include the interest rate vote for all MPC members. The division of votes presents an insight into which members are shifting their stance on interest rates and how the committee is to determine a rate change in the future.
Interestingly, the votings are expected to be 7-0-2, it means, 7 out of 9 members are expected to vote for hiking the interest rate.
Summing up, it will be nice to trade Sterling pairs today, especially if we see no change in the interest rates. The voting and inflation outlook is also worth watching today. Stay tuned for Forex Trading Signals and have a pleasant day!