The Bank of England (BOE) is set to make its interest rate decision today and possibly give a time frame for their interest rate hike. The potential for disappointment is high since BOE Governor Carney previously gave a very hawkish statement and the pound stands to lose if the UK central bank fails to follow through.
Recall that the latest round of PMI (purchasing managers index) have been weak, as the manufacturing, services, and construction sectors all showed a slowdown in growth and failed to meet industry forecasts. Perhaps the biggest disappointment among these is the services PMI, as the UK economy relies heavily on this industry for overall economic activity.
BOE Rate Decision Scenarios
Despite the recent setback, the UK economy was able to post a much stronger than expected manufacturing production gain of 1.0%. This suggests that the UK economy might see a bleak growth figure for the first quarter of the year but is in for a good performance in the second quarter, depending on whether the economy can sustain the progress or not.
The BOE is expected to keep monetary policy unchanged by maintaining asset purchases at 375 billion GBP and interest rates at 0.50% for now. This event might not spark such a huge reaction from GBP pairs if there is no press conference that follows. Pound traders might have to wait for the release of the BOE meeting minutes to see what the bias for monetary policy is.
Earlier this week, the FOMC meeting minutes revealed that not all Fed officials agree with Yellen’s optimistic outlook for interest rate hikes, leading to a massive dollar selloff. If a similar situation is seen for the BOE, the pound might undo most of its recent gains as well.
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