2016-07-18 13:14:11

The decision of the Bank of England to keep interest rate at the current level of 0.5% astonished investors, as it was expected that the Bank of England would lower interest rate after the exit of the UK from the EU.

In respond to this decision the pair GBP/USD went up by 330 points. Even despite following up comments that the majority of the committee expects more easing in August, at the closing session on that day the pair rose by almost 200 points.

Last Friday, the pair GBP/ USD went down, especially after the release of US positive data and statement by the representative of the Bank of England Mr. Andy Haldane that more policy easing would be needed in August.

US data on retail sales and industrial production, released last Friday, was above expectations, which provoked the rise in the USD and revived market expectations of the rise in the interest rate in the USA this year.

According to futures on the US Fed rate, probability of the rate hike in September is 18%, while in the middle of last week it was only 12%. The probability of a rate hike in December has grown up to 40% from 34%.

Many economists expect that in August the Bank of England may lower interest rate by 25 basis points, to 0.25%, the bank may also increase quantitative easing program by 100 billion pounds, up to 475 billion pounds.

If British CPI (released tomorrow) PMI (released on Friday) will be below expectations, probability of introduction softer monetary policy at the meeting of the Bank of England on 4 August will increase, which will be a positive factor for the pair GBP/USD.

In this case, the pair GBP/USD can go back to the level of 1.3000 and continue to decline up to the 31 – year lows at the levels of 1.2900 and 1.2800.

Expectations of monetary policy easing and uncertainty of the economic prospects after Brexit will prevent the rise in the Pound.

GBP/USD: is more monetary policy easing possible in August?  Fundamental analysis for 18.07.2016