Growth Forecasts to Rise But Inflation is Coming

While Super Thursday should put the focus firmly on the UK today, the first two weeks of Donald Trump’s presidency has been eventful, to say the least, so it’s safe to assume potentially market moving headlines here are never too far away.

Super Thursday marks the day once a quarter when the Bank of England announces its latest monetary policy decision, releases the minutes of the meeting, its quarterly inflation report including new forecasts and Governor Mark Carney chairs a press conference. Needless to say, it’s often quite an eventful day, particularly in post-Brexit Britain when so much uncertainty exists for the economy.

What the Data Gives the FOMC Takes Away

The BoE is expected to be forced to swallow some pride again today and take another step down from its pre-referendum position on the economic impact of Brexit and announce upgrades to its growth forecasts following another few months of stronger data. Carney in particular came in for severe criticism for his pre-referendum warnings and that has not eased as the economy has outperformed most expectations in the near term.

While the BoE will likely announce higher near term growth forecasts in today’s inflation report, I still expect the central bank to stand by its warning that the economy is on the cusp of an inflation-induced slowdown. The CPI inflation numbers are rising fast and the rapid and substantial increase in input prices – up 15.8% year on year in December – are going to put further pressure on businesses to pass on higher costs. The real test of the economy will come from how the consumer responds to higher prices or how businesses manage to absorb them but in the absence of higher wages, the former is not sustainable for too long.

BoE Super Thursday Preview

The question today will be how traders respond to the combination of higher growth forecasts and repeated warnings of downside risks from the BoE. It will also be interesting to see how the combination of the two impacts its outlook for interest rates and whether it maintains its previous neutral stance here, indicating that the next move is as likely to be a hike as a cut. Any suggestion that this has tipped slightly in the favour of a hike could send the pound higher, which could see it test 1.28-1.2850 against the dollar, an important level for the pair.

GBPUSD Daily

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As noted, Trump has been extremely active in his first two weeks as President, signing executive orders on a range of matters and imposing his controversial travel bank that has attracted mass criticism and protests. I don’t expect Trump to be too far away from the headlines any time soon and traders will likely be sensitive to any new announcements throughout the day.

For a look at all of today’s economic events, check out our economic calendar.

Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.