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.

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.

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. 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, 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. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, 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. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.