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GBP: the interest rate one day before Brexit
Today, the Bank of England will announce the country interest rate and give a press conference. Hence, the GBP has a big day ahead. What is it going to face? Let’s have a look.
Looking at the H4 chart of the EUR/GBP, we can guess that the market is waiting for the announcement of the BOE to decide on the next step of movement.
Since the middle of December - meaning, since the victory of Boris Johnson - the currency pair has been moving mostly sideways. That movement was confined between 0.8470 and 0.8600. However, last Wednesday the price dropped below 0.8470 to 0.8410 - the latter is now the local mid-term support level. Currently, EUR/GBP is in consolidation at 0.8466 testing the 50-period MA, with support at 0.8450 and resistance at 0.8470. Whether it moves up to break the local resistance and go for 0.8495, where 200-MA and 100-MA come together, depends on the tone of the Bank of England. So what is that tone going to be?
The interest rate has been at 0.75% in the UK through 2019. It seems the question will be: for how long? The economic environment may not have changed much (however, that’s a question for discussion), but the socio-political environment did. Brexit is at hand – the European Parliament already approved it, so it is now just for the EU Council to do the same. Once that is done, Friday will be the day when the UK is no longer with the EU, with only the transition period forcing it to observe the EU regulations.
Internally, the question is whether the Bank of England’s Monetary Policy Committee inclines more to the dovish direction or not. The last time 2 out of 9 members voted for the rate cut. The fundamentals for that were mostly increasing concerns over the British job market and the overall pace of economic growth. If today we have a bigger portion of the rate cut supporters, that would mean that the cut this year is almost inevitable. This inevitability may be carved out even clearer if the BOE policy makers consider that finalizing Brexit on time (until December 2020) is unlikely – they would probably like to price in the GBP’s drop in this case long in advance.
So let’s see what they say: watch the rate announcement (14:00 MT time), read into the details of the press-conference and trade the GBP. For now, LOG IN and prepare your positions!
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