HomeVolatile Week for British Pound as Bank of England’s Decision Looms Large

Volatile Week for British Pound as Bank of England’s Decision Looms Large

The Bank of England is expected to deliver its monetary policy decision two days from now. The UK economy still suffers from the COVID-19 pandemic and remains in lockdown mode. Will the Bank of England keep the stimulus intact now that inflation has reached the target?

The British pound is one of the most volatile currencies on the FX dashboard. The pound pairs have a bigger Average True Range (ATR) when compared to other currency pairs, offering attractive opportunities for both swing traders and scalpers.

Volatility, this week, is expected to rise. The Bank of England’s monetary policy decision is due in a couple of days, and it is a difficult one to make.

On the one hand, UK inflation has reached the Bank of England’s target, justifying the removal of the monetary stimulus. A signal, therefore, that the bank will remove accommodative measures is not out of the question.

On the other hand, COVID-19 infections have started to rise again in the United Kingdom. The delta variant (i.e. the Indian variant) is more infectious than any other and it is the dominant one in the country. The government has already postponed the end of the lockdown measures several times, showing the growing concern posed by virus variants.

All eyes on the MPC asset purchase facility votes

With COVID-19 cases rising again, the Bank of England may delay its removal of the stimulus as the economy cannot fully reopen. Despite the bank historically following in the Fed’s footsteps, this time may be different due to the virus.

The Monetary Policy Committee (MPC) signal is the one that counts this week. No one is expecting the MPC to raise the interest rate just because inflation has hit the target.

Instead, any sign of hawkishness will matter for the pound. That sign might come from the asset purchase facility vote. This vote is in the X-X-X format – the first number shows the votes to increase, the second to decrease, and the third to hold the asset purchases.

In other words, a higher second number is a bullish sign from the pound as it represents a hawkish signal from the Bank of England. In the previous meeting, held on May 6, 2021, the MPC voted 0-1-8; therefore, one dissented from the consensus.

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