– Without a new Quarterly Inflation Report, the Bank of England had little choice but to sit on their hands and keep policy in check all-around.
– In what may have been the quietest reaction in several years, GBPUSD traded in a 20-pip range immediately after the rate decision was announced.
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It should come as no surprise to anyone that the Bank of England kept rates on hold today. Such an economic and/or financial environment wrought with interference from UK domestic politics has left little room for the BOE’s Monetary Policy Committee to operate, one way or the other. The reaction by GBPUSD says it all: within the first 10-minutes of the announcement, the range was a mere 20-pips between 1.3108 and 1.3128.
Expectations were Low for the BOE Meeting
According to overnight index swaps, rates markets were pricing in a 0% chance of a move in either direction today. After the March BOE meeting, rates markets were pricing in a 17% chance of a 25-bps rate hike and a 2% chance of a 25-bps rate cut by the end of the year. In other words, the rate outlook has been and remains neutral.
Brexit Latest – Extension Likely, but Not Guaranteed
With the specter of a potential no deal, “hard Brexit” lingering as the March 29 deadline approaches, UK PM Theresa May finds herself pleading with EU officials in Brussels for an extension. While EU officials have been open to the idea of an extension, we haven’t seen the UK and EU come eye-to-eye yet on an exact date. The issue of the EU parliamentary elections in early-July is in play, as the EU would prefer to have the UK out of the union before the elections take place.
GBPUSD Price Chart: Daily Timeframe (June 2018 to March 2019) (Chart 1)
While implied volatility levels have started to spike for various GBP-crosses, perhaps taking a step back and looking at the big picture is more important. After all, since the bearish outside engulfing bar set on June 14, 2018, GBPUSD has spent more than 92% of its time trading between 1.2660 and 1.3365 (that is, price was within said range at some point during the trading day).
With all of the Brexit headlines swirling about, traders may feel that it’s best to wait for definitive news and a definitive range break before staking out a significant position.
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— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail at email@example.com
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