DailyFX.com -
- Bank of England (BoE) to Keep Benchmark Interest Rate at Record-Low.
- Will Signs of Stick Inflation Spur a Dissent Within the Monetary Policy Committee (MPC)?
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Trading the News: Bank of England Interest Rate Decision
Even though the Bank of England (BoE) is widely anticipated to retain its current policy in May, a downward revision in the central bank’s growth and inflation forecast may dampen the appeal of the British Pound and spur a bearish reaction in GBP/USD as it drags on interest-rate expectations.
What’s Expected:
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Why Is This Event Important:
Indeed, Governor Mark Carney may continue to argue that the next move will be to normalize monetary policy, but the central bank may sound increasingly cautious this time around as the U.K. Referendum clouds the economic outlook for the region.
Expectations: Bearish Argument/Scenario
| Release | Expected | Actual |
| Retail Sales ex Auto Fuel (MoM) (MAR) | -0.3% | -1.6% |
| Jobless Claims Change (MAR) | -10.0K | 6.7K |
| Employment Change (3Mo3M) (FEB) | 60K | 20K |
Waning job growth accompanied by the slowdown in private-sector consumption may prompt the Monetary Policy Committee (MPC) to trim its growth and inflation forecast, and a meaningful downward revision may drag on sterling as market participants further push out bets for a BoE rate-hike.
Risk: Bullish Argument/Scenario
| Release | Expected | Actual |
| Gross Domestic Product (YoY) (1Q A) | 2.0% | 2.1% |
| Average Weekly Earnings ex. Bonus (3MoY) (FEB) | 2.1% | 2.2% |
| Consumer Price Index Core(YoY) (MAR) | 1.3% | 1.5% |
Nevertheless, sticky inflation paired signs of stronger wage growth may spur a dissent within the MPC, and a split vote to retain the current policy may generate a bullish reaction in the British Pound as it puts increased pressure on the BoE to normalize monetary policy sooner rather than later.
How To Trade This Event Risk(Video)
Bearish GBP Trade: BoE Trims Growth & Inflation Forecast
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Need red, five-minute candle following the GDP report to consider a short sterling trade.
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If market reaction favors bearish British Pound trade, short GBP/USD with two separate position.
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Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
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Move stop to entry on remaining position once initial target is hit, set reasonable limit.
Bullish GBP Trade: MPC Adopts More Hawkish Outlook for Monetary Policy
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Need green, five-minute candle to favor a long GBP/USD trade.
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Implement same setup as the bearish British Pound trade, just in the opposite direction.