How could Bank of England’s Super Thursday affect exchange rates?

Thursday 12th May 2016
Sterling has weakened off a little, after the UK posted weaker than expected UK Industrial Production yesterday. Production actually rose slightly in February and March, however it fell 0.4% in the first three months of this year. It also fell in the last 3 months of 2016. This means the industry is in recession for the 3rd time in the last 8 years, and Sterling has suffered a little as a result.

Manufacturing, construction and industrial production seem to be pulling the economy down as a whole at the moment, pulling total growth lower in the last 6 months, reflecting the overall slowdown in global economic growth.

The chart above shows the slip in the rate through the trading session yesterday. If you look closely however, despite the clear drop, GBP/EUR has been relatively range-bound this week and the pair remained within the 1.26 to 1.27 range.

Bank of England Super Thursday

Today is what economists have dubbed ‘Super Thursday’ and is the day when the Bank of England release a host of data, including their interest rate decision, quarterly inflation report, and any changes to their QE stimulus program.

I don’t expect any surprises in terms of the interest rate decision, which are going to be left on hold at 0.5% again where they have sat for many years. Again, I don’t expect any changes to monetary stimulus. The Inflation report however could well cause some volatility. It will outline a detailed economic analysis and inflation projection which could affect when the BoE will move interest rates in the future. A dovish report could well pull Sterling lower against other currencies.

The other important thing to watch out for today is any comments that the BoE governor Mark Carney makes about the EU referendum. While he is supposed to remain neutral, it’s very likely that they will warn about the economic impact a Brexit would have on the UK, and this would affect Sterling accordingly, so after a relatively flat week for GBP/EUR, today could provide some volatility and cause this pair to break out of the range it’s been stuck in all week.

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