BoE to Spark Volatility in the Sterling Dollar

The Forex universe has already withstood three interest rate decisions from the Reserve Bank of Australia, Bank of Japan and the Federal Reserve this week. They left the market unfazed. Now Forex traders are gearing up for today’s Bank of England (BoE) monetary policy decision. While the other central banks, mentioned above, were looking to keep the same course, the Bank of England operates under a different set of assumptions and fears. The BoE, in its unorthodox style, cut rates on August 8 and hinted more easing was to follow. Then there is the Brexit worries.

What makes the BoE so remarkable, today, is the market’s sensitivity to all of the speculation plaguing the news feeds. Brexit. Even before the referendum that led to the United Kingdom leaving the European Union, the BoE issued dire warnings for the UK economy. They warned about sever problems for the local banking and financial system if the leave camp won. Their tone has not changed much after the historic vote. Supporters of the leave camp have labeled BoE Chair Mark Carney a scare monger. However, all signs of impending trouble were met, over the last several months, with strong selling of the Sterling Dollar. Carney announced this week that he would stay on through negotiations with the EU to help support the Prime Minister of the United Kingdom, Theresa May. This gave the British Pound some support. The Forex market, for now, is in neutral. Still, this does not resolve the importance of investor sensitivity towards today’s Bank of England rate meeting.

In the monetary policy decision, to change or not change rates or make changes to the benchmark or stimulus programs, no changes are expected today. This is only a small part of what will impact the markets today. The quarterly inflation report is due out as well. This will have more impact on the British Pound and its trading partners. If the Bank of England should hold on policy but lift expectations for their local economy, we could see a brief rally with the already heavily discounted Pound. This is the story to watch. The GBP/USD, EUR/GBP and the GBP/AUD are all in a position to see nice gains in that scenario. Especially if the BoE unexpectedly eases today. Should the fear continue, then we could see more selling with the already sold currency. Forex pairs like the GBP/JPY and GBP/CAD will be the Forex markets to watch in that scenario.