BOE Super Thursday Part II: What to Expect

Can’t get enough of ’em central bank events? We’ve got another big one comin’ up from the U.K. as the Bank of England (BOE) is gearing up for its Super Thursday fireworks.

If you’re a newbie forex trader just tuning in, lemme tell you that “Super Thursday” refers to the much-anticipated release of the BOE monetary policy statement, MPC meeting minutes, and the Inflation Report. That’s a trifecta of major catalysts for the pound’s forex moves!

Why are these reports important?

As I’ve mentioned in my earlier Forex Trading Guide this week, monetary policy decisions are the bread and butter of forex price action since these influence the demand for and value of a particular currency. Policy tightening, whether in the form of an actual rate hike or mopping up excess liquidity, typically spurs currency appreciation while policy easing or expectations of such could lead to depreciation.

Now the actual BOE statement doesn’t usually trigger a strong forex reaction among pound pairs, most likely because the U.K. central bank has been sitting on its hands for quite some time. Because of that, traders prefer to look at the transcript of their meeting to read between the lines and gauge any changes in policy biases.

The quarterly Inflation Report is also a huge deal because it contains the central bank’s projections for growth and inflation, from which they base their potential policy adjustments. Downgrades on their estimates suggest that the BOE might stick to their accommodative stance for much longer and possibly push back rate hike expectations while upgrades could revive calls for an interest rate hike early next year.

What happened last time?

The very first Super Thursday back in August sparked a sharp selloff for the pound since the events revealed that the BOE is in no rush to tighten. Based on the main takeaways from the announcements, most MPC members thought that there wasn’t enough economic evidence to support a move towards policy tightening, indicating a significant shift from their earlier hawkish bias.

Although BOE member Ian McCafferty still voted to hike interest rates right then and there, he was ditched by his Dissenting Duo partner Martin Weale and wasn’t joined by any other committee members. To top it off, policymakers also decided to lower their estimates for employment and inflation, with Governor Carney blaming the pound’s forex rallies for putting additional downside pressure on price levels.

What might happen this time?

Some forex analysts say that another round of downgrades might be announced this time, particularly when it comes to inflation forecasts. As I’ve shared in my latest Monthly U.K. Economic Review, the September headline CPI slipped back into negative territory after a few months of staying flat or printing feeble 0.1% gains. Business conditions haven’t fared any better also, with PMI readings for the manufacturing and services sector suggesting a downturn.

In contrast, the consumer sector has seen some green shoots, as the employment reports showed signs of a rebound while retail sales posted impressive gains. Keep in mind, however, that the upcoming Inflation Report will be the first to factor in the slowdown in China and its potential impact on the U.K. economy.

How could GBP/USD react?

Cable suffered a sudden hundred-pip drop immediately following the previous Super Thursday and was able to keep up the bearish momentum in the days that followed.

GBP/USD 15-min Forex Chart

GBP/USD 15-min Forex Chart

Note that the pair had been stuck in tight consolidation prior to the actual events before making a sharp break to the downside, which means that a straddle forex setup might work out. If you’re not comfortable keeping positions open with these event risks, you could sit on the sidelines and watch price action pan out before figuring out your longer-term bias. Good luck!