Bank of England’s MPC members are to play safe?

  • United Kingdom is the only country that followed the United States in the rate raising frenzy since 2008 while other G20 countries still sticking to their record of low-interest
  • Bank Of England raised the rate 2 times in the past 11 years, and it is standing now at 0.75 percent.
  • The bigger thing to take note is on the final Brexit deadline of 29 March 2019. The date is getting closer than ever; there is no end in sight for the Brexit troubles.

The Monetary Policy Committee (MPC) of Bank of England (BOE) includes nine members; the Governor, the three Deputy Governors for Monetary Policy, Financial Stability, and Markets and Banking, the Chief Economist and four extremal members appointed directly by the Chancellor. External members are appointed to make sure the MPC benefits from the thinking and expertise outside of the Bank of England.

In June 2018, 3 MPC members out of 9 favored the rate hike, and it was materialized in Aug 2018 as BOE raised a notch for the second time. As per the last December vote, all the members unanimously voted to hold the rates of 0.75 percent.

From the economic fronts, United Kingdom (UK) is doing rather very well compared to their G20 European counterparts. The unemployment rate is at 4%, and it is the lowest point in the past 8 years. That pretty much shows the robust labor market in the country, in contrary to the doom and gloom pictures painted by some media outlets.

The national inflation is also on the slide after peaking out in the last August of 2018 of 2.5 percent. The highest number was 3 percent in late 2017. Bank Of England (BOE) is to release the rate decision on Thursday, 7th February 2019.

The numbers are clearly indicating that the Bank of England is in a very good position to raise the rate if it wants to. The economy of England is vibrant enough to absorb any potential negative impact due to the rate hike.

Even though the economic data are painting rosy pictures, but it gets rather gloomy on the country’s political landscape. United Kingdom parliament just rejected Prime Minister Theresa May’s Brexit deal in January 2019 and plunged its plan to leave the European Union (EU) in chaos.

One of the main issues on Brexit fiasco is the border question on Northern Ireland. If it is not treated properly, the issue can revisit the dark days known as “The Troubles” of the 1968-1998 period. Anyhow, the UK is due to leave the EU at 23:00 GMT on Friday 29 March.

So, there are many uncertainties lies ahead and the main reason MPC members will not keen on hiking the rate must be the political one. It is very likely that Bank of England (BOE) will keep the rate steady for the month of February 2019.

From the technical analysis (TA) point of view, British Pound (GBP) was on the rise from $1.248 since Oct 2018, and it has met strong resistant 2 weeks ago near $1.328 region, and it is on the slide for the past few days.

Since the daily timeframe, (D1 TF) price actions are still on the bear side, the pair can slide further down first with the momentum. If Bank of England (BOE) decides not to raise the rate and keep it steady, we can expect more bearish momentum to appear and bring the pair further (GBP/USD) as an immediate effect.

$1.291 to $1.295 will act a strong support region, and there is a place where the trade can enter a potential profitable long position without much draw down. But it is better to wait for a decent bullish candle to appear prior to any long/bullish entry. In the longer term (3 months to 6 months horizon) this pair still shall rise higher, and it shall revisit $1.34 level again in the near future.

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