GBP Jumps As BoE Keeps Rates On Hold Cuts Outlook

The Bank of England voted to keep interest rates on hold ay 0.75%. The MPC vote split was 7 – 2; a more hawkish vote split than what markets were expecting sending the pound shooting higher.

MPC members have decided to listen to the improvement in sentiment data, which has shown signs of a bounce following the decisive Conservative win in the elections. The committee will now watch closely to see whether the early indication of an improved outlook will translate into stronger hard data.

Whilst holding back on the rate cut, the BoE also slashed growth forecasts for the British economy to the lowest level since WWII.

2020 GDP revised to 0.8%, down from 1.2%.
2021 GDP revised lower to 1.4% down from 1.8%.

The move by the BoE reflected how the central bank viewed Britain’s adjustment after Brexit.

Whilst the BoE are cautiously optimistic over the state of the UK economy currently, there are still fears over how the UK will leave the EU. At the end of this year higher trade tariffs could cause a disruption to the economy. Brexit uncertainty dragged on the UK economy across the past year and could potentially continue to do so this year.

The BoE also added that interest rate policy in the short term “may need to reinforce the expected recovery of GDP growth, should more positive signals from recent indicators are not sustained.” In other words, should the hard data not reflect the improvement in sentiment, the BoE could cut rates.

Given that the market was pricing in a 50% chance of a rate cut, volatility was expected either way. However the hawkish vote split and broadly upbeat sounding BoE lifted sterling.Prior to the announcement GBPUSD was flat around $1.3024. The pair surged to $1.3108 and is currently finding support around $1.31.

Traders will now look ahead to Brexit tomorrow. This is priced in, so no big swings are expected. However, it will refocus attention onto the complex trade negotiations ahead which could pressurise the pound.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.