Bank of England in the spotlight and a significant day for Sterling
Bank of England monetary policy statement headlines the economic calendar today. Mark Carney and co. are expected to keep things unchanged for now, putting the spotlight on minutes of the MPC committee meeting. Priced-in BOE rate hike expectations have tumbled over recent weeks, making it relatively difficult to engineer a dovish surprise versus a hawkish one and the minutes will be examined for further indications. We cannot rule out Ian McCafferty withdrawing his vote for a hike in light of the recent fall in oil prices and market volatility, as he did in January 2015 following the December 2014 oil price fall. On balance, with much expectation of a hike diminished this may lay the groundwork for a British Pound recovery. On the other hand, a 9-0 dovish surprise could push the pair lower to 1.4227 against the Dollar (May 2010 low). In short, the GBPUSD is testing a major support area around 1.43/44.
With both the Eurozone and UK economy struggling, GBPEUR traders will closely monitor the relative changes in major economic indicators moving forward, as well as the geopolitical risks on the horizon. The pair is sitting precariously close to a long term support level of 1.3100 (Feb 2015) which, if broken convincingly, could see us back in the mid 1.2000s.
For Sterling, what happens today could determine the direction of price action for potentially the next several months.
The ECB minutes of the December rate decision are also scheduled for release today. The minutes are likely to illustrate concerns regarding low inflation and express their readiness to do more. However, both aspects are well known to the markets and consequently are unlikely to have much impact on the EUR.
Data to watch: 12.00pm UK Interest rate decision, Monetary Policy Summary & MPC Vote. 12.30pm Eurozone monetary policy meeting accounts. 1.30pm US Initial jobless claims