Forex News: Currency Briefing – Bank of England’s MPC minutes out today
The minutes of the Bank of England’s Monetary Policy Committee meeting of 5 and 6 February are due out today (at 09.30 UTC), published as usual two weeks after the interest rate decision. MPC minutes give a full account of the policy discussion during the meeting, including differences of view. They also record the votes of the individual members of the Committee.
Generally, a hawkish statement about the inflationary outlook for the economy leads the markets to see a higher possibility of a rate increase, which is positive for the pound.
Last week, BoE governor Mark Carney stressed that rates are not heading higher any time soon but stepped away from citing the unemployment rate per se as a key determinant of when policy will start to tighten.
Last month, UK inflation fell below the Bank of England’s two percent target for the first time in more than four years, easing pressure on household budgets and supporting the Bank’s case for keeping interest rates low. The Consumer Price Index, the country’s official measure, fell to 1.9 percent from two percent in December, according to the Office for National Statistics.
David Kern, chief economist at the British Chambers of Commerce, commented that the fall in inflation “will strengthen the case for the Bank of England’s revised forward guidance policy that an early rise in interest rates is neither necessary nor likely”.
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Many analysts believe that falling inflation will help close the gap between wages and prices. Jeremy Cook, chief economist at foreign exchange dealer World First, observes: “Global inflation trends, particularly those in developed markets, have been falling in the past year and the UK is no exception. The combination of slowing consumer expenditure, discount operations by retailers, quiet energy markets and a strong pound have all helped CPI fall to its lowest level in 51 months.”
The Bank of England is widely thought unlikely to raise interest rates until near the middle of next year, although there is also significant money on a move early in the year. But the BoE has made it clear that, when interest rates eventually do start to rise, the increases will be gradual and limited. On this footing, the UK’s inflation rate could be expected to linger around two percent for an extended period.
The GBP/USD hit a session low at 1.6656 yesterday and is likely to find support at 1.6591, the bottom from last Thursday.
*Editing by Frank Quin*