Bank of England Provides Two Dissenters

Alan Penny

7 November 2019

3 min read

Great Britain flag waving

  • Monetary Policy Committee surprises with a couple of dissenters
  • Does this mean a shift in Bank of England policy?
  • British pound gets hit

The Bank of England Monetary Policy Committee had a meeting on Thursday, where two members voted for an interest rate cut. It was expected to be nine to nothing as far as holding interest rates are concerned, so this has caused several traders to readjust their positions.

As a result, the British pound got sold off rather drastically almost immediately, trading down from 1.28 USD all the way to the 1.28 level as a reaction.

That being said, the market already looks as if it is digesting the news. At this point, it won’t be as disastrous as initially thought. Much of the trading seems to have been done by algorithm, and therefore has probably already seen its greatest influence.

One of the main concerns will be whether or not monetary policy is starting to shift in London, but we are still a far cry away from seeing an interest-rate cut.

That being said, it is a little bit more dovish than anticipated, which may dampen some of the strength for the British pound at least in the meantime. Obviously, all things Brexit trump monetary policy right now.

The potential fallout

The potential fallout, although negative for the British pound, could be multifaceted. For example, the British pound could find itself on the back foot, but that should help lift the FTSE.

British bonds may get a bit of a boost due to bonds producing less yield in the United Kingdom. Beyond that, it shows that at least some of the members of the Bank of England aren’t against “racing to the bottom” against other central banks as far as interest rates are concerned.

Again, this isn’t something that’s happening tomorrow, but it is something to pay attention to. It will also almost certainly make the next interest rate/MPC meeting something forex traders will suddenly find much more interesting than initially thought.

Brexit again

One of the possible paradoxes of this entire situation is that the Brexit situation makes monetary policy extraordinarily difficult for the Bank of England, as there are far too many uncertainties. However, at the same time, it keeps the Central Bank from making major decisions.

the Monetary Policy Committee suddenly became a lot more interesting, and now you will see more reactions to meetings, speeches, and the like

In a sense, it’s been held hostage by Brexit, much like everything else involved in Great Britain these days. That being said though, the Monetary Policy Committee suddenly became a lot more interesting, and now you will see more reactions to meetings, speeches, and the like.

Having said that, if we get positive news out of the entire Brexit situation, that will be strong for the British pound regardless of what the Monetary Policy Committee does at least for the short term.

The two dissenting voters have only muddied the waters even further when it comes to trading the British pound. However, this should give some relief to the London Stock Exchange and other “risk-on” assets in the United Kingdom.

Written By
Alan Penny

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