CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

BoE preview – hawks grounded again

A weakening of UK data points to possible trouble for UK monetary policy hawks, and for the rally in GBP/USD.

Chris Beauchamp ChrisB_IG
Chief Market Analyst, London

Publication date : 2017-05-09T13:01:32+0100

Mark Carney, Governor of the Bank of England

Source: Bloomberg

The recent weakening in UK economic data, albeit from a strong level, suggests that those on the Monetary Policy Committee (MPC) who had been planning to vote for higher rates will have the rug pulled from underneath them. As Reuters has noted, the economy grew by 0.3% in Q1, half the Bank of England’s (BoE) forecast, and the driver of the economy, household spending slowed in Q1 as well. Even inflation could be about to stall, given the recent slump in oil prices.

All this means that the MPC will have a tough time issuing optimistic predictions in its inflation report, which spells trouble in the near term for the rally in GBP/USD. Meanwhile, it is likely that the vote this time will be the same as before, with just one policymaker voting for a rate increase (making the score 7-1, as the MPC is down one member after Charlotte Hogg departed).

The BoE will want to keep its options open, as it always does. Mark Carney’s view remains that the next move in rates is likely to be up, but even this still gives him the wiggle room to cut rates if needed, and conveniently skates over the fact that not moving is also an option, and will probably be the default one for the rest of the year and into 2018.

GBP/USD has faltered over the past two days, after a very strong run since the election was announced. It looks increasingly like we will see a pullback towards the March trendline, which suggests a drop to $1.27, although even a move below this would still constitute a lower high, as long as it holds above the April low at $1.2365.

GBP/USD price chart

GBP/USD price chart

GBP/USD price chart

Meanwhile, EUR/GBP remains interesting. It is moving towards the key support zone of £0.8304-£0.8402, which has stymied losses since July last year. On the upside however, we have a downtrend line off the Autumn highs, which could cap progress above £0.86. A breakout above here would mark a significant shift in trend.

EUR/GBP price chart

EUR/GBP price chart

EUR/GBP price chart

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IG Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.

Find articles by writer

Disclaimer:

All forms of investments carry risks and trading CFDs may not be suitable for everyone. CFDs are leveraged instruments and can result in losses that exceed deposits, so please ensure that you fully understand, and are aware of, the risks and costs involved. Refer to the Risk Disclosure Statement and Risk Fact Sheet.

IG Asia Pte Ltd (Co.Reg.No. 200510021K) is regulated by the Monetary Authority of Singapore and holds a capital markets services licence for dealing in capital markets products that are over-the-counter derivatives contracts and is an exempt financial adviser.

IG provides an execution-only service. The information in this advertisement does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. You should consider your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

The information on this site is not directed at residents of the United States or Belgium and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

This advertisement has not been reviewed by the Monetary Authority of Singapore.