BOE Preview: What to expect of GBP/USD?

It’s BOE ‘Super Thursday’ today, the first one for 2017, with markets unanimously expecting that the BOE will make no change to its monetary policy setting.

The British central bank is expected to maintain its refi rate at a historic low of 0.25% and asset purchase target at GBP 435 bn.

In accompaniment to the BOE policy decision, we will also have its minutes, which is expected to offer no new surprises and hence, the main risk event for the pound is expected to be the BOE Quarterly Inflation Report (QIR).

The central bank is expected to make upward revisions to the price forecasts in light of the recent GBP weakness, as developments around the Brexit issue takes a toll on the domestic currency.

While the BOE Governor Carney is expected to maintain a neutral bias and could reiterate that the interest rates can move in ‘either direction’ to keep the economy on even keel. Carney may also note that the bank will not be overly tolerant of an inflation overshoot. 

Analysts at RBC Capital Markets noted, “The BoE is widely expected to leave policy unchanged (unanimously in all likelihood). The Inflation Report narrative should maintain the existing neutral stance for policy but it will have to reflect the more upbeat activity data since November which prompted Governor Carney to foreshadow an upgrade to the Bank’s GDP forecasts at a recent Treasury Select Committee hearing.”

“Above-target inflation is set to remain a feature of the updated forecasts, making it difficult for the Committee to strike a dovish tone. There are still headwinds for the economy to face in 2017, even if momentum is solid coming into the year, so we look for the Committee to signal its reluctance to tighten policy.”

GBP/USD Technical Levels

Haresh Menghani, Analyst at FXStreet explains, “With short-term indicators in bullish territory, the pair seems all set to reclaim 1.2700 handle and head towards testing 1.2725-30 resistance area, coinciding with 50% Fibonacci retracement level of 1.3439-1.1980 downfall. A convincing move above this resistance is likely to lift the pair towards December 2016 monthly highs resistance near 1.2775 level before eventually boosting it beyond 1.2800 handle towards 61.8% Fibonacci retracement level resistance near 1.2875 region.”

“On the flip side, 1.2630-25 area now becomes immediate support to defend below which the pair is likely to break below 1.2600 handle and head towards 38.2% Fibonacci retracement level support near 1.2540 region, en-route 100-day SMA support near 1.2490-1.2500 psychological mark,” Haresh adds.