Pound Lower as UK Interest Rate Expected To Remain Unchanged
The solid pace of growth of the U.K. economy seen in 2014 was nowhere to be seen on 2015 although a lot of factors came externally it did peg back the growth expectations that put the Old Lady at one point hiking rates ahead of the Fed. 2016 started with the United Kingdom facing stronger headwinds in the form of the Chinese stock market turmoil and the drop in energy prices at the same time the local economy is showing signs of a further slowdown. The Bank of England is expected to keep interest rates unchanged until after the middle of this year and economist are even pushing it out further.
The GBP/USD has touched 5 year lows after investors are now adjusting their expectations of a rate hike. The pound is down almost 4 percent versus the U.S. dollar since December 15 of last year as the China turmoil and drop of energy prices have put the rate hike further back than what was forecasted last year. The performance of the pound has placed it as the worst performer amongst majors even ahead of commodity currencies such as the CAD (down 3.79 percent).
The Bank of England will release its monetary policy summary and minutes on Thursday, January 14 at 7:00 am EST.
The BOE is expected to follow the Fed in raising interest rates, but the big question is when. Governor Mark Carney reassured markets by calling the deflation threat transitory, but there has not been a strong signal inflation will set in, to be followed by a rate hike. The market expects the next move by the BOE to be a rate hike, but the timing could be more closely tied to the second U.S. rate hike. In the last meeting there was a single dissenter voting for an immediate rate hike, the minutes published tomorrow alongside the statement could show that dissenter coming back into rate holding camp fold as the economic situation has changed.
The possibility of Britain exiting the European Union has grown. The so called “Brexit” has received backing by major public figures as well as some corporate statements like Toyota who has vowed to stay in the U.K. regardless of the outcome of the vote. The rising probability of a Brexit has put some downward pressure on the pound as the currency copes with other macro factors.
The job of central bankers is not easy, specially when the variables remain so volatile. Bank of England (BoE) Governor Mark Carney has tried to reassure markets that the adverse deflation factors are not permanent but his hawkish rhetoric has been met with a harsh reality triggered by China and the developing crude price war.
There are few surprises expected tomorrow as the BOE releases its rate statement and minutes, but even the vote count showing no dissent could further trigger a sell off in the GBP as it would show little confidence of a rate hike in the short term, mirroring the expectations of the market.
Forex events to watch this week:
Thursday, January 14
7:00 am GBP MPC Official Bank Rate Votes
7:00 am GBP Monetary Policy Summary
7:00 am GBP Official Bank Rate
8:30 am USD Unemployment Claims
Friday, January 15
8:30 am USD Core Retail Sales m/m
8:30 am USD PPI m/m
8:30 am USD Retail Sales m/m
10:00 am USD Prelim UoM Consumer Sentiment
*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse 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.