BOE hike preview: buy the rumor, sell the fact?

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The Bank of England is set to raise the interest rate on November 2nd, 2017, more than 10 years and 4 months after the previous hike. The move was well-telegraphed by the BOE since their previous meeting in October. In addition, recent economic figures support a rate rise: GDP beat expectations in Q3 with a rise of 0.4% while inflation reached the top of the range at 3%.

The big question remains: is this a one-off, undoing the post-Brexit rate cut of August 2016? Or is it the beginning of a tightening cycle.

Update: BOE raises rates but GBP/USD crashes – live coverage

Given the recent moves in pound/dollar, the latter option seems to be the answer. GBP/USD is trading around 1.33, moving toward the upper end of the recent range: from 1.3030 to 1.3345. All in all, cable is up some 200 pips during this week. The lion’s share of the rise came before the upbeat manufacturing PMI, and cannot be attributed to it. The pound is also higher against the euro or the yen, so this clearly isn’t related to dollar weakness.

Why are markets sure that the BOE is going to deliver a hawkish hike? Well, one reason is that Mark Carney and co. cannot raise rates without justifying it with confidence about the future. So, it makes sense to expect them to be upbeat.

However, given the Brexit uncertainties, it is hard to see them extending their confidence from being positive about the economy to hinting about further rate hikes in the near future. The hike will reset the rate at 0.50%, which was the interest rate between March 2009 to August 2016. Will they raise the interest rate beyond this level in early 2018? It is hard to imagine this given how stuck Brexit negotiations are.

All in all, a “smoking gun” for further hikes is hard to imagine. It is easier to imagine over-enthusiastic pound-buying. A clear characteristic of the pound is that markets “front-run” big events either by selling or by buying the pound. In some cases, the moves are based on leaks or rumors while in other cases, the moves are totally unjustified.

So, the recent rise of Sterling may be a selling opportunity. What do you think?

More: GBP/USD – Gotta Have Faith To Go Long Sterling On the Carney Put

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

15 Comments

  1. Nandarani33 on

    I agree. Thanks for the information about the characteristic of the pound which will prove useful. Boris/Kathy agree with you.

  2. Think if every charts saying oversold , whats gonna say , of course buy buy buy.
    Banks do not like this fact.
    when it is overbought it is a buy… yes sir

    • At the moment, I don’t think the charts say it is oversold or overbought, but the recent rise is not supported by the fundamentals at the moment…

  3. I said if the charts says oversold..
    Fundamentals as you know gonna change and we gonna read it later sir Elam, and we gonna say now fundamentals has been changed then the move is logic.
    I am long on sterling and i love if the if the pound go up …

  4. Dear Yohay!
    A question about your chart , the blue horizontal line has been built before the recent move or after that?

  5. All your lines support and resistance are supporting rate hike ahead .
    1.3342 need to be checked as logic your lines are.

  6. Construction PMI above 50 again, industry expansion is this a fundamental? but see GBPUSD is jerking..
    see the H4 time frame.
    searching a bottom candle…

    I still believe on up move now…

  7. the recent rise is not supported by the fundamentals at the moment….I quote you..

    What is this drop after the release, is not the opposite of the fundamentals?