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Bank of England’s monetary policy preview

Today Bank of England (BOE) will announce its regular monetary policy along with minutes. What made today special is quarterly inflation report.

All the three releases, individually have enough firepower to generate volatility spike and release of all three might cast a storm over pound based pairs. All will though depend on wordings. The market would be paying extra attention at today’s meeting as the central bank remains open to rate hikes due to higher inflation thanks to a weaker pound. And at this meeting, they might signal what lies ahead in 2018.

Before hiking interest rate in November last year, the central bank hinted, “A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target.”

There might be similar hints at today’s policy statement, with inflation hovering close to 3 percent.

Preview of the three –

  • Monetary policy decision – The market is expecting further interest rate increases going forward. So, the market would be focusing on the choice of wording to understand whether the hiking cycle would continue or is it just a one-off event.
  • BOE minutes – The market would focus on the minutes to assess the future bias and division among policymakers.
  • Quarterly inflation report – Possibilities are high that tone might less hawkish while forecasting inflation as energy prices are low and as the exchange rate has moved higher. Moreover, shop prices declined again according to the latest report from BRC.

Downside surprise with no rate hike hint would have more momentum today as the pound is already weak. The pound is currently trading at 1.389 against the USD.

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