Will BoE Cut Interest Rates- How Forex Is Affected

Will BoE Cut Interest Rates- How Forex Is Affected

Written on

Sep, 2016

Updated on

Aug, 2020

Table of content

The Monetary Policy Committee of the England’s Bank held its very first meeting after the historical August’s rate cut. In the meeting, the status quo was maintained, and the key policy rates were unaffected at their usual rate of 0.25%.The asset purchase program of the government bonds worth GBP 60 billion that was started by the Central Bank also continued. The overall purchases can now be summed up to around GBP 435 billion. Additionally, the bank voted to continue with its initial corporate bonds purchases up to GBP 10 billion. How has this affected the forex markets?

Trends in Forex Markets

For starters, the initial announcement that was made in August concerning forex markets package can be said to be quite reassuring. This is in line with the low economic levels that were witnessed after the referendum decision by the UK to exit the EU. However, most of the economic indicators have since improved and are expected to do even better in the near future.

Furthermore, the internal estimates of the BoE foresee a growth in the GDP of between 0.2% and 0.3% for the period from July to September. Though this development is still weak, it is somewhat better than the forecast made in August of about 0.1% growth. All in all, there has been a steady recovery in the consumption sector as well as a balanced development in the prices of assets.

BoE cut of the interest rateCritical Reports Expected

Nonetheless, on the inflation sector, the figures are somewhat discouraging. Last month, the one-year consumer price index displayed 0.6%. This was a reduced value than was estimated by the consensus. Just like the European Central Bank, the Bank of England has also set a 2% inflation target. This goal is expected to be achieved in 2017’s first half. It is the objective of the bank of England to meet the 2% inflation target because it is considered as a vital factor in the growth sustenance in the region as well as employment.

Currently, all eyes are on the Bank of England, waiting to see whether it will be forced to reduce its interest rates or not. Considering that London has an enormous financial system, it is regarded as a global economic hub not only for its domestic economy but also for the global one as well. With the next BoEs policy meeting scheduled on 3rd November, it will be interesting to see if the interest rates will be cut. What’s more, in the September meeting, the Monetary Policy Committee indicated some willingness to reduce the interests.

Consequently, forex traders at CMC Markets have their eyes set on these key data points to see where next the policy is heading. Before then, the quarterly inflation report is anxiously being watched to see its added data point. It is also one of the key things that in the November meeting, BoE will have to address. When the report is released on 3rd November, those with currency pairs that have established positions such as GBP/JPY and GBP/USD most likely need to start preparing for increased volatility as the release approaches.

With the LSE being one of the best performing exchange markets in the world with millions of GBP traded each day, hopefully, things will improve.

Other Traders Around the World

On trading floors elsewhere around the world, the JPY are in a series of sharp slopes against the MXN and CAD. This is witnessed after the US presidential debate where the forex exchange markets concluded that Hillary Clinton won over Donald Trump. This means that the relationship between the US and its immediate neighbours will, for now, remain unchanged.

The MXN however, is being watched closely by Bank analysts since it is considered as a measurement of risk for the emerging markets. The peso surged after several weeks of continuous decline against the dollar to 19.50 from its weak point of 19.93. When the European trading desks opened, it rose to 19.44.

Notable gainers from the US presidential debate were the ZAR and the KRW. They were both up by more than 1% as well as the IDR. There was also an incredible surge of the CAD against the JPY. Other notable rises that have also been witnessed include the AU, the NZD and the NOK.

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