The job market continues to improve and inflation continues to rise. However, the cloud of the Omicron variant could obscure the outlook. Will the Bank of England rate hike be postponed until February?
When will the Bank of England announce its decision on its interest rates?
The Bank of England will release its interest rate decision at 7:00 AM EST on Thursday, November 16.
Recap from the November meeting
The Bank of England took the markets off guard in November and voted 7-2 to keep interest rates unchanged at 0.1%. Policymakers said they wanted to see how the labor market would cope with the phased reduction in the seniority leave scheme before rates hike.
Since then, the most recent data has revealed that the labor market remained strong in November with 275,000 jobs added, while unemployment ticks below 4.2%. The number of unemployment benefit claimants also fell by nearly 50,000. Overall, the end of the seniority leave scheme had little effect on the labor market. And then came the Omicron variant.
What to expect?
Since the Omicron variant hit the scene and Boris Johnson announced Plan-B, investors have pushed back expectations of a rate hike by the Bank of England. The general expectation is that the central bank will hold off until February, or maybe even later before firing the gun on the rate hike, giving the bank time to see how Omicron develops. , what actions the government is taking and their impact on the economy.
But at the same time, the Bank of England cannot ignore the warning signs that inflation is flashing. Britain’s CPI jumped 4.2% year-on-year in October, the highest level in more than a decade, up 3.1% in September and well above the Bank’s 2% target from England. The BoE expects inflation to peak at 5% in the spring of next year before dropping back down to the low back to 2% in 2023.
Normally, strong labor market data and ten years of high inflation would be enough to secure a rate hike. But Omicron threw a wrench in the works. The general market expectation is that the BoE will launch the box on the road. However, the central Bank of England could just focus on data and hike rates – given that this is not expected, it could create more movement in the pound.
It is also useful to keep in mind that the Fed is expected to reduce its asset purchases at a faster pace than the ECB. Therefore, inaction by the Bank of England could see larger moves in the GBP / USD pair, while a rate hike by the Bank of England could bring larger moves for the EUR / GBP pair. .
What’s next in forex for the GBP / USD pair?
The price of the pair GBP/USD broke below the trendline support level at the start of the month to find support at the annual low currently at 1.3160.
The rebound from the 2021 low has so far failed to move above the 5-week drop resistance and the weekly high at 1.3277. A move above here exposes trendline support turned resistance.
Beyond 1.3370 here the end of the November high could offer resistance, but a move above that level could bring buyers back into the market.
With the Bank of England’s decision this week, GBP / USD could test the annual low at 1.3160 again, opening the door at 1.31. The RSI supports further losses to come for the GBP / USD pair.
By Fionna Cincotta, Forex.com » Official site
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell forex foreign exchange contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may result from the fact that someone relies on such information.
