Sterling traders prepare for volatile Bank of England “Super Thursday”

Enrique Díaz-Álvarez04/Nov/2015Currency Updates

Almost overshadowed by recent announcements in the Eurozone and the US, the Bank of England will, at 11am on Thursday morning, be holding its monthly monetary policy meeting.

What makes it “Super Thursday”?

The UK central bank will be announcing its interest rate decision and minutes on the same day, including the crucial voting pattern among policymakers. In addition this month, the BoE will also be releasing its quarterly Inflation Report in the early afternoon of “Super Thursday”, which will include forecasts for both growth and inflation.

Attention on dissenters

At its latest meeting in October, the Bank of England once again voted to keep interest rates at their record low level, voting 8-1 for the third straight month. The lone dissenter was again notoriously hawkish external monetary policy member Ian McCafferty.

A key gauge this month of how close the Bank of England is to raising rates, is whether any other dissenters join McCafferty in voting for an immediate hike. Despite impressive UK manufacturing data on Monday and recent hawkish comments from central bank member Kristin Forbes, last week’s soft GDP report probably means that the likelihood is for yet another 8-1 vote.

Improved UK economic data

However, since last month’s meeting we’ve seen a further improvement in UK labour market conditions, including declining unemployment and more impressive earnings data (Figure 1).

Figure 1: UK Wage Growth and Core Inflation (2013 – 2015)
Super Thursday

Source: Thomson Reuters Datastream Date: 03/11/2015

Although market volatility has subsided in the past month, Sterling has appreciated mildly in trade-weighted terms, which will provide a modest headwind to the UK trade sector.

Our expectations

We think that, on net, labour data and Sterling appreciation will cancel each other out and the tone of the central bank’s minutes will not differ substantially from those of last month.

The tone of the Inflation Report is important, in particular any softening of the references to increased downside global risks.

At any rate, we expect to have a much clearer read on the timetable for Bank of England interest rate hikes after Thursday’s key releases.

Impact on Sterling

An overall hawkish message from the Bank of England on Thursday, which signals a rate hike in the first half of next year, including the relatively unlikely scenario of additional dissenters among the committee, would provide strong support for Sterling.

This would put the central bank firmly on course for a rate hike in the second quarter of next year, as is our forecast.

However, emphasis on downside risks and a possible delayed hike could cause a GBP sell-off in the near term.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.