We could see big trading opportunities in the British pound this week as the Bank of England’s Monetary Policy Committee will give their latest policy changes and outlook this Thursday at 12:00 GMT.
Here’s a guide on what happened the last time the central bank met, what to expect this time, and what to look out for.
What happened last time?
- The BOE voted to keep the main lending rate at 0.10%
- They unanimously voted to maintain the target for the total stock of its bond purchases at £745 billion
- Revealed that the Bank of England was exploring negative interest rates and how it could be immediately implemented.
The big takeaway from the last monetary policy meeting was the openness of the Bank of England to explore negative interest rates, as well as a dovish take on the economy despite recent positive updates.
According to the Monetary Policy meeting minutes, it looks like the committee continued to be highly concerned that the rise in cases at the time would weigh further on the economy, specifically, “a risk of a more persistent period of elevated unemployment than in the central projection.”
This surprise leads to a roughly 0.60% – 0.80% range drop in Sterling against the majors, which later reversed on hopeful comments on Brexit progress from European Commission President Ursula von der Leyen.
What’s expected this time?
- No change in interest rates is expected.
- Last week, the BOE was expected to increase quantitative easing from £745 billion in bond purchases to £845 billion
- But given this past weekend’s announcement for a new national lockdown to control the spread of COVID-19, it’s highly probable we could see the Monetary Policy Committee (MPC) announce a bigger change than expected last week.
In just one weekend, the probability of the Bank of England doing more to stimulate the economy rocketed higher after the latest move to lock down England for one month to combat the coronavirus pandemic.
According to analysts, this shifted the outlook negatively on the economic recovery for the fourth quarter and raises the risk of a lockdown may be in place for longer than a month if the data suggests it is needed.
What to look out for?
Sterling may have a bearish reaction once again to this event if we see a combination of the following scenarios:
- The bond purchasing program increases by more than the expected range of £75 billion – £100 billion.
- Increased rhetoric of lowering the main lending rate from 0.10% to 0.00% or going negative.
- A dovish turn in outlook on the probability of a free trade agreement being made between the European Union and the U.K. by January 1, 2021
Keep in mind that Brexit headlines and broad global risk sentiment may also be driving factors in Sterling price action, so a mix of the above outcomes combined with negative global risk catalysts (e.g., more pandemic lockdowns, potential social unrest in the U.S. related to U.S. election results, etc.), then the probability rises of selling (bearish) pressure on Sterling following the event.