Sterling will be big focus this coming week with July PMIs, the Bank of England’s monetary policy announcement and Quarterly Inflation Report scheduled for release. The BoE meeting will be particularly important as data has been at odds with the central bank’s guidance. When they last met in June, the market was surprised that 3 members voted for an immediate rate hike. At the time their hawkishness came in the face of softer data but rising inflation created a deep divide within the central bank. MPC members Forbes, Saunders and McCafferty voted for a hike and in the weeks that followed, it appears that Haldane and Carney share their hawkish views and if all 5 vote for a hike, it would be a majority. Of course that is unlikely as the central bank as a whole has not prepared for the market for an August hike. But they often like to telegraph major changes in their Quarterly Inflation report so that could be the big announcement next week. If the BoE statement / Quarterly report is hawkish and/or one more member votes in favor of tightening, GBP/USD will hit highs. Based on the central bank guidance’s we have every reason to believe they will prepare the market for policy normalization but data is not on their side. We’ll have to see how the next PMI reports fare (both the manufacturing and services reports are due before the rate decision) but retail sales, consumer confidence, wage growth and inflation weakened since the last monetary policy meeting.
The week ahead
Bank of England policy announcement
The Bank of England will announce its rate decision at 1100GMT (7:00AM ET) on Thursday. The central bank will also publish its Quarterly Inflation Report at the same time. BOE Governor Mark Carney will hold a press conference shortly after the announcement.
Most economists expect the central bank to keep rates at their record low to shore up economic growth, though some are calling for a hike.
Three out of eight policymakers voted for a hike at the last meeting, but one of the three, Kristin Forbes, is no longer at the BOE.
Most investors reckon that until wages start to pick up and there is more certainty around Brexit, rates will stay at current record-low levels.
Besides the BOE, traders will focus on a trio of reports on activity in the manufacturing, construction and services sectors for further indications on the continued effect that the Brexit decision is having on the economy.
Some BOE policymakers have started to call for higher interest rates in the months ahead due to the recent surge in inflation, which was caused largely by the plunge in sterling following last year's Brexit vote.
But a recent run of weak data and deep uncertainty about the impact of Brexit on the economy have cooled the speculation that the BOE is poised to start removing its crisis-level stimulus.
The week ahead
Bank of England policy announcement
The Bank of England will announce its rate decision at 1100GMT (7:00AM ET) on Thursday. The central bank will also publish its Quarterly Inflation Report at the same time. BOE Governor Mark Carney will hold a press conference shortly after the announcement.
Most economists expect the central bank to keep rates at their record low to shore up economic growth, though some are calling for a hike.
Three out of eight policymakers voted for a hike at the last meeting, but one of the three, Kristin Forbes, is no longer at the BOE.
Most investors reckon that until wages start to pick up and there is more certainty around Brexit, rates will stay at current record-low levels.
Besides the BOE, traders will focus on a trio of reports on activity in the manufacturing, construction and services sectors for further indications on the continued effect that the Brexit decision is having on the economy.
Some BOE policymakers have started to call for higher interest rates in the months ahead due to the recent surge in inflation, which was caused largely by the plunge in sterling following last year's Brexit vote.
But a recent run of weak data and deep uncertainty about the impact of Brexit on the economy have cooled the speculation that the BOE is poised to start removing its crisis-level stimulus.
