The Bank of England (BOE) monetary policy committee will be announcing their interest rate decision today at 13:00 South African time.
Inflation Report: The Bank of England (BOE) Inflation Report sets out a detailed economic analysis and inflation projection upon which the monetary policy committee bases its interest rate decisions.
Seeing as Inflation is one of the main drivers of the U.K monetary policy, the outlook of the BOE to increase rates this time around will be unlikely seeing as the UK Consumer Index (CPI) has been in a steady decline over the last 6 months.
Note: If we see the U.K inflation increase then we can expect the Pound (GBP) to weaken against all major currencies.
Interest rate: The consensus is that The Bank of England (BOE) will leave the interest rate unchanged at 0.50% but all eyes will be on The Bank of England (BOE) Governor Carney to give clues as to when the rates will be raised once more.
Note: If we see the U.K interest rate increase then we can expect the Pound (GBP) to strengthen against all major currencies.
If we don’t see an interest rate increase the Pound (GBP) might weaken further down to the 1.30 level. An increased rate will strengthen the Pound (GBP) from the 1.31 level higher as seen in the chart below.
How it affects us here in South Africa
Over the last couple of weeks, we have seen pressure on Emerging Markets as talks of international trade wars escalate.
If we see the Bank of England (BOE) monetary policy committee increasing interest rates -which is unlikely it will add more pressure on the Rand (ZAR) as the Pound strengthens. We might see capital outflows as South African bonds will be less attractive as UK bonds will have a greater yield for less risk.
- Point 1.) If the U.K Interest rate is increased we might see the Pound (GBP) strengthen against the Rand (ZAR) back to the 18.35 level as shown in chart below.
- Point 2.) If we don’t see a interest rate increase we might just see the Rand (ZAR) strengthen against the Pound (GBP) back to the 17.45 level as seen in the chart below.
In point 1.) we can expect the Rand (ZAR) to further depreciate against the Dollar (USD) as seen in the chart below.
What to trade today:
Major Forex pairs to look at will be GBP/USD, GBP/JPY, EUR/GBP
Major indices to look at will be the FTSE, DJ Euro Stoxx 50.
Exotic Forex pair will be USD/ZAR and GBP/ZAR. You can trade this via the NewwaveUSD ETN, (NEWUSD) and Newwave GBP Sterling ETN (NEWGBP)
Locally we have dual listed stocks that might be affected like Brait, Capital and Counties, Intu Properties and Mediclinic.
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