Bank of England Cuts Growth Forecast

BrexitIn its monthly policy release, the Bank of England announced that it was holding the base interest rate steady at 0.75% for the sixth consecutive month, as expected, and cut its growth forecast for the U.K. economy for the calendar year 2020. It now sees GDP as likely to increase at 1.5% instead of 1.7% that year. “The fog of Brexit is causing volatility in the data” said Bank Governor Mark Carney. However, the Bank also noted that salaries are continuing to increase.

Ever since the Brexit referendum in the summer of 2016 more than two and a half years ago, the terms upon which the U.K. would exit the European Union, and the question of whether in the end the U.K. would even leave at all, has dominated trading in and valuations of the British Pound, to a much, much greater extent than the central bank’s monetary policy or even domestic fiscal policy. This is why we see Parliamentary votes on Brexit causing larger movements in the Pound than we get after central bank or economic data releases.

Following the Bank’s report, the British Pound fell to a two and a half week low against the U.S. Dollar at 1.2855, although it was much steadier against the Euro, its major currency cross in terms of trade. This suggests that perhaps the Pound’s low against the Dollar has more to do with the Dollar than the Pound. It was also notable than within an hour of the Bank’s release, the Pound had recovered all its earlier immediate loss against both the Dollar and the Euro, despite the Governor’s gloomy talk about a no deal Brexit, which the U.K. is apparently “not ready” for (despite having had two and a half years to get ready).

The only thing that is truly worth focusing on in trading the British Pound are political developments affecting whether Britain will leave the European Union on 29th March as scheduled, and if it does so, on what terms. The resolution of this question is highly likely to be worth several hundred pips long or short.

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment. Learn more from Adam in his free lessons at FX Academy.