Pound and Super Thursday

Trading 07 nov 2019 Donner votre avis

Passions on Brexit gradually subsided: the election campaign began in the UK, after which all the statements of yesterday's deputies are already considered through the prism of political populism. Johnson compared his main opponent, Corbyn, to Stalin, and Corbyn, in turn, accused the prime minister of planning to "unleash Thatcherism," criticizing his Brexit plans. The pound is phlegmatically watching political fights, trading in a pair with the dollar in the middle of the 28th figure.

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It is obvious that until December 13, that is, before the announcement of the results of the extraordinary parliamentary elections, the Brexit issue will be in limbo, even despite the preliminary leadership of the Conservatives. Let me remind you that in view of the specifics of the British electoral system, it is impossible to identify the party rating with the estimated number of seats in the House of Commons. For example, four years ago, during the next parliamentary elections, Conservatives had almost 37% of the vote, and they were able to form their own majority (330 seats). In 2017, when Theresa May initiated an early election, the Tories lost their majority, receiving only 317 mandates, although they received 42.5% in the elections. That is why traders are now extremely restrained in their assessments and decisions, and the GBP/USD pair actually froze in the 1.2850 area.

However, tomorrow promises to be "hot." Tomorrow, November 7th, the so-called "Super Thursday" is expected, when several major events for the pound take place within one day: firstly, this is a meeting of the Bank of England, and secondly, the release of the quarterly report on inflation and monetary policy. The news marathon is completed by Mark Carney, who will hold an extended press conference. Such a busy program within one day is relatively rare, so the market reaction can be quite volatile, especially amid the temporary lull over Brexit.

According to the general forecast, the Bank of England will retain all the parameters of monetary policy in the same form: the probability of this scenario is almost 100%. In general, the November meeting promises to be a "passing", as the key deterrent - Brexit - is still in limbo. In this regard, the British central bank may slightly adjust the wording in its accompanying statement, weakening market expectations regarding the hawkish decisions of the central bank in the foreseeable future.

The fact is that traders are still counting on raising the rate in the first half of next year - naturally, in the event of a deal between London and Brussels. Although Mark Carney has repeatedly stated that the reaction of the central bank to the decision on Brexit will not be "automatic." That is, the day after the implementation of the "hard" Brexit, the regulator will not lower the rate - and vice versa, in the case of the "soft" scenario, the monetary policy parameters will not be tightened at the next meeting. The regulator will first study the behavior of key indicators of the country's economy in the changed conditions, after which it will take an appropriate decision. I believe that Carney will repeat this thesis again tomorrow, thereby exerting pressure on the British currency.

It is also worth noting that the English regulator from tomorrow will combine a summary of inflation with a quarterly report on monetary policy. Now this document will be called the "Monetary Policy Report" and will include the central bank's forecast regarding the expected GDP growth and inflation, as well as the prospects for monetary policy. According to regulator members, such an integrated approach will improve communication between the central bank and market participants.

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Most likely, forecasts for inflation and GDP in Britain will also be slightly reduced. Let me remind you that the latest data on the growth of British inflation turned out to be very contradictory: core inflation predictably grew (up to 1.7%), but the general consumer price index was in the red zone, not reaching the forecast values. The data on the British labor market released the other day also left a double impression: the unemployment rate unexpectedly grew to 3.9%, while salaries continued to show positive dynamics.

Thus, the English regulator can focus on either a rather weak increase in inflation, or on the confident dynamics of wage growth. Most likely, the Bank of England will take the most neutral, balanced and expectant position, given the upcoming parliamentary elections and the uncertain prospects of Brexit. Nevertheless, Mark Carney may put pressure on the pound if he categorically excludes the scenario of an "automatic" rate increase in the event of a deal. True, according to some experts, the head of the English regulator can vice versa - to cheer up the market, hinting at the willingness of the British economy to tighten monetary policy. In my opinion, this is an unlikely scenario, given Carney's caution and his previous rhetoric.

The material has been provided by InstaForex Company - www.instaforex.com

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