What's in store for the Bank of England?

This week’s Bank of England meeting and inflation report comes following a notable surge in GBP/USD.

Now that we have the monthly purchasing managers index (PMI) readings out of the way, we can look forward to the Bank of England (BoE) meeting and the quarterly inflation report (QIR) that comes out along with it.

Find out more on why the BoE meeting is important to traders.

This meeting takes place in the wake of the latest push higher for the pound, especially against the US dollar. A 5.6% gain against the US dollar was not something many had been expecting, even given the surge against the greenback witnessed since the lows of October 2016.

With sentiment towards the pound now quite bullish, as noted by net long positions on the currency at the highest levels since 2014, there might not be much room in the short term for further gains. However, when compared with positioning in 2014, there is still scope for further upside in the longer term.

The recent rally in GBP/USD means that the BoE has less pressure to act; the stronger currency tends to reduce imported inflation, just as the weaker pound boosted it in the aftermath of the Brexit vote. Arguably, the currency now looks to be at risk from a more dovish BoE, especially if growth and inflation estimates are downgraded in the QIR at the same time.

Find out more on how Brexit will affect traders.

GBP/USD’s dip into late December found buyers, and the surge took the pair to its highest level since 2016. However, gains stalled around $1.43, with $1.4345 marking the upside limit. Below $1.3943, the price could see a wider retracement to $1.3613. The next upside target would be marked at $1.4668, should the pair manage to clear $1.4345.

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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.

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