The Bank of England (‘the BoE’) held its bank rate at 4% on 6 November as widely expected, but there was some surprise in the form of a narrower than expected majority of the Monetary Policy Committee (‘the MPC’) backing this move, 5-4 instead of 6-3. This article summarises the BoE’s latest decision and its context, then looks briefly at the charts of GBPUSD and GBPJPY.
6 November’s ‘dovish hold’ is already being contrasted with the Fed’s ‘hawkish cut’ on 29 October. Traders concentrated particularly on changes to the wording of the BoE’s latest statement, with upcoming cuts to the base rate being described as ‘gradual’ this time rather than ‘cautious’. The BoE’s recent meeting was also notable for being the first time each individual member of the MPC’s in-depth reasoning behind their vote has been published, with the main point of disagreement between the five votes to hold and four to cut having been the pace at which inflation might decline.
Of course, the questions in the press conference concentrated on the upcoming budget. Governor Andrew Bailey stuck to his guns and stated repeatedly that it’s impossible for the BoE to preempt the effects of the budget since they don’t know what measures it’ll contain. Chancellor Rachel Reeves is likely to call for hiking taxes at least somewhat, which would probably have a negative impact on inflation and allow rates to be cut faster, but this isn’t guaranteed yet. Dr Bailey also expressed uncertainty as to whether inflation has peaked:
British annual headline inflation has now held at 3.8% for three consecutive months, although in September the consensus had been for it to rise to 4%. Central bankers, like investors, are understandably reluctant to read too much into one month’s surprising economic release; 19 November’s British inflation is likely to be a keenly watched release.
Cable made a fairly significant overall gain in the aftermath of the BoE’s meeting on 6 November as traders concentrated on the extremely high result from Challenger’s job cuts, the highest for October in more than 20 years at 153,000, and around double the consensus. While the pound has suffered recently in various pairs as speculation has grown that the British government will hike taxes later this month, increasing signs of weakness in the American job market are hard to ignore.
In almost any situation, $1.30 is likely to be a strong psychological area and it seems for now that there’s some reluctance to push below there. The slow stochastic has given a clear oversold signal for several days and the price has only recently emerged from oversold based on Bollinger Bands.
