BOE minutes woke the bulls up
The BOE policy minutes on Wednesday revealed that the Committee members voted unanimously to hold interest rates unchanged at 0.5%. However, two members reviewed a rate hike as “finely balanced” – it means they could soon vote for a rate rise. Hawks are citing a pickup in euro zone’s economy as a reason. News that two unknown hawks returned to advocating a rate hike pushed the British pound higher.
Overall, the document contained no fundamental changes: we all know since months that the bank is planning to hike rates, but has no clear view on timing. However, this time we’ve seen a more bullish view on the economy: economists believe that inflation could recover more rapidly than the market priced in when the temporarily pressure on prices dissipates.
At the same time, there was a very special phrase in the minutes: all members agree that “it is more likely than not that the bank rate will rise over the 3 year forecast period”. We see a cautious dovish shade in this wording.
Anyway, the BOE is very unlikely to make any hawkish decisions on its May 11 meeting: there is a high chance that the new government after the May 7 election still would not be formed. In March the UK inflation stayed dangerously flat and there is high chance to see it in the red zone in the coming months. We’re waiting for the BOE inflation report on May 13 to get more details on that issue.
The BOE minutes supported buying demand for GBP/USD, pushing the pair above 1.5050. Today’s move was strong enough to negate the cable’s near-term bearish prospects. We now expect the price to reach 1.5150 before resuming the decline (trend line). Next strong resistance lies at 1.5200 (100-day MA). A decline below 1.4950 is needed to return the bearish view back to the table.
Weekly GBP calendar