FX Week Ahead - Top 5 Events: September BOE Meeting & GBP/USD Rate Forecast

09/19 THURSDAY | 11:00 GMT | GBP BANK OF ENGLAND RATE DECISION

There are two primary reasons why traders should keep expectations low for the September BOE meeting. The first reason is typical in nature, at least since the June 2016 Brexit: the BOE is doing everything it can to stay neutral to not appear political during the Brexit negotiations. The second reason is typical in nature, at least since the Global Financial Crisis in 2008: September policy meetings do not produce new growth, inflation, and unemployment forecasts, collectively known as the Quarterly Inflation Report (QIR).

BANK OF ENGLAND INTEREST RATE EXPECTATIONS (SEPTEMBER 16, 2019) (TABLE 1)

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Now, overnight index swaps are pricing in a 1% chance of a 25-bps rate cut at the September BOE meeting, or, a 99% chance of a hold. Traders have been of the mindset that there won’t be a change at the September BOE meeting for some time; six months ago, there was a 76% chance of a hold.

With the Brexit talks ongoing, the BOE isn’t expected to move anytime soon; the BOE’s main rate is favored to stay at 0.75% through at least June 2020. But the moment clarity over Brexit begins to take shape, it seems highly likely that rate odds will evolve rapidly; the period of high volatility for the British Pound isn’t going to dissipate anytime soon.

Pairs to Watch: EURGBPGBPJPYGBPUSD

GBPUSD TECHNICAL ANALYSIS: DAILY RATE CHART (SEPTEMBER 2018 TO SEPTEMBER 2019) (CHART 1)

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In our last GBPUSD technical forecast update, it was noted that “a break above 1.2380/85 – a key band of support/resistance dating back to 2017, including the January 2019 Japanese Yen flash crash low and the July 2019 swing low – would suggest that the trend has indeed turned in a more reliable fashion.” By the end of Friday, September 13, GBPUSD closed through this level.

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