Huddle up, pound traders! The BOE Super Thursday happens only once every quarter so let’s prep for these potential long-term forex catalysts.
In case you’re wondering what this is all about, lemme tell you that THREE major events are all happening in the U.K. this Thursday, namely the BOE monetary policy statement, the central bank’s Inflation Report, and the release of their policy meeting minutes. Pretty exciting, huh?
What’s so special about these events?
Central bank events tend to spur a lot of forex volatility and can push currencies in a particular direction, especially if officials decide to adjust monetary policy or even just their biases. Actual easing measures or expectations of such usually result to currency depreciation while tightening moves or hawkish biases can trigger strong rallies.
Apart from the BOE policy decision, the release of the MPC meeting minutes could also push pound pairs around because this would reveal whether committee members are leaning more towards the dovish or hawkish side.
The icing on the cake and what makes this Super Thursday super is the BOE Inflation Report, which contains more deets on the central bank’s growth and inflation outlook. As such, it provides better clues on what policymakers are planning next. Downgraded forecasts could indicate that monetary stimulus might stay in place for much longer while upgraded estimates could suggest that the central bank is gearing up to tighten soon.
What happened last time?
The previous Super Thursday in November last year turned out to be very bearish for the pound since the Inflation Report indicated that “inflation is likely to remain lower than previously expected until late 2017” after which it could reach the 2% target in two years’ time. In addition, BOE officials downgraded their growth and inflation estimates, confirming that they’re not looking to hike rates anytime soon.
Even so, lone hawk Ian McCafferty still voted to increase borrowing costs right then and there, insisting that inflationary pressures were strong enough to warrant a rate hike, while the rest of the MPC members decided that they’d like to keep sitting on their hands for much longer.
What’s expected this time?
Another round of dovish remarks might be in the cards for this week’s BOE events, as Governor Carney hasn’t exactly been mum about his bias. In his recent testimonies, he clarified that the U.K. central bank doesn’t have an actual timetable for tightening monetary policy, putting him much farther away from his previous glass half-full outlook.
In addition, Carney shared that Brexit fears could also bring more risks, as this might leave Britain to fend for itself during these rocky economic times. It doesn’t help that the slowdown in China and the slump in oil prices could weigh on the central bank’s growth and inflation forecasts once more.
How might pound forex pairs react?
With that, sterling might be in for yet another sharp drop, especially if Carney keeps backpedaling from his earlier tightening forecasts for mid-2016. Heck, if the latest batch of economic risks are enough to convince lone hawk McCafferty to vote against hiking rates this time, pound bears might paint the forex town red!
Then again, most of these dovish expectations have been priced in since Carney’s downbeat testimony last month, which suggests that profit-taking might take place swiftly. Besides, there’s always the element of surprise, as some policymakers might not share Carney’s pessimistic view and decide to highlight the green shoots in the U.K. economy.