– Bank of England (BoE) to Provide Updated Growth & Inflation Forecast
– Will BoE Comment on the British Pound?
Trading the News: Bank of England Inflation Report
The Bank of England’s (BoE) Inflation Report may generate fresh highs in the GBP/USD should the central bank show a greater willingness to normalize monetary policy sooner rather than later.
What’s Expected:
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Why Is This Event Important:
The fresh developments coming out of BoE may boost interest rate expectations should the central bank raise its growth and inflation forecast, and Governor Mark Carney may do little to halt the ongoing appreciation in the British Pound as it helps the Monetary Policy Committee (MPC) to deliver price stability in the U.K.
Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Jobless Claims Change (MAR)
-30.0K
-30.4K
ILO Unemployment Rate (3M) (FEB)
7.1%
6.6%
Consumer Price Index Core (YoY) (MAR)
1.6%
1.6%
Sticky price growth paired with the ongoing improvement in the U.K. labor market may prompt the BoE to adopt a more hawkish tone for monetary policy, and the GBP/USD may continue to extend the advance from earlier this year should we see a growing number of central bank officials show a greater willingness to raise the benchmark interest rate later this year.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Mortgage Approvals (MAR)
72.0
67.1K
Gross Domestic Product (QoQ) (1Q A)
0.9%
0.8%
BBA Loans for House Purchases (MAR)
48950
45933
However, efforts to cool the housing market may limit the BoE’s scope to normalize monetary policy in 2014 as the central bank continues to highlight the persistent slack in the real economy, and the British Pound may face a larger correction in the days ahead should the committee further delay its exit strategy.
Read More:
GBPUSD Risks Major Support Break Ahead of Key UK/US Data- 1.6820 Key
Euro Fails to Preserve Bullish Momentum- EURNZD Eyes Fresh Lows
How To Trade This Event Risk(Video)
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Bullish GBP Trade: BoE Adopts More Hawkish Tone- Presents More Detailed Exit Strategy
Need green, five-minute candle following an upbeat statement to favor a long British Pound trade
If reaction favors buying British Pound, long GBP/USD with two separate position
Set stop at the near-by swing low/reasonable distance from entry; need at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bearish GBP Trade: BoE Monetary Policy Report Drags on Interest Rate Expectations
Need red, five-minute candle to consider a short GBP/USD trade
Implement same setup as the bullish British Pound trade, just in the opposite direction
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Fails to Maintain Opening Monthly Range (1.6280); Bearish RSI Break Risks Larger Correction
Interim Resistance: 1.7000 Pivot to 1.7030 (100.0% expansion)
Interim Support: Interim Support: 1.6400 (61.8% expansion) to 1.6430 (23.6% expansion)
Impact that the BoE Inflation report has had on GBP/USD during the last release
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
FEB 2014
2/12/2014 10:30 GMT
—
—
+48
+130
February 2014 Bank of England Inflation Report
The BoE inflation report is likely to spur volatility in GBP crosses, especially in the context of the current situation with rate expectations. At the last release, Carney said that the BoE sees further rate increases as gradual and limited. At the release we saw the Pound rally as comments indicated that the central bank saw rate increases, although gradual, sooner rather than later. Since then we have seen the appreciating Pound help cap higher inflation and any further indication that expectations have been lowered may weigh negatively on GBP crosses.
— Written by David Song, Currency Analyst and Gregory Marks
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx