GBP/USD Bank of England Expected to Hold Rates

 

  • Only 91 days until the U.K. general election
  • Minutes showed last MPC meeting voted 9-0 for holding rates and asset purchase amount
  • New BoE powers to include mortgage limit setting

The Bank of England (BoE) will publish its official bank rate tomorrow at 12:00 a.m. GMT (7:00 a.m. EST). The central bank is expected to hold rates at 0.50% and keep its asset purchase program unchanged. The Old Lady turned pessimistic on the U.K. recovery last year as the deflation battle worsened in Europe, and energy prices impacted growth forecasts. After a 7-2 vote at the Monetary Policy Committee’s (MPC) December meeting, the MPC members voted 9-0 in favor of holding rates when longtime dissenters Martin Weale and Ian McCafferty rejoined the majority.

The countdown toward the U.K. general election sits at 91 days, leaving time aplenty for political uncertainty. After joining the U.S. Federal Reserve in the exclusive club of central banks about to abandon easing monetary policy, the BoE will likely wait until after the election to start hiking rates if the state of the economy calls for it.

The GBP/USD has appreciated as the U.K. posted strong economic data mixed with America’s soft fourth-quarter gross domestic product data. The pair is trading above 1.5250, boosted by a strong services purchasing managers’ index (PMI), and it could get a further lift from the BoE’s assessment of the economy. But all could change with Friday’s release of the U.S. nonfarm payrolls (NFP) report. The private sector in America released the ADP report recently showing a monthly growth of 213,000 new jobs. The figure came in under expectations, but it still points to continued growth of jobs stateside along with the upward revision of last month’s data.

EUR/GBP is giving back all the gains of the month as it trades near the 0.7490 line. Greek uncertainty keeps rising as Prime Minister Alexis Tsipras and his finance minister do the rounds looking for a deal ahead of the February deadline. A negative response from Germany, and non-committal statements from eurozone members alongside weaker European PMIs, combined to depreciate the EUR. Rate divergence matters even if the BoE is not ready to hike just yet, as it will do so sooner than the European Central Bank, which at the moment is struggling to maintain a unified front as it deals with Greece.

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.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza