Global macro overview for 16/06/2017:
The Bank of England decided to leave the interest rate unchanged at the level of 0.25% as expected, but MPC vote was a surprise. The Monetary Policy Committee was expected to vote 7-1 as usual, but the vote was 5-3 as two more policy members, Saunders and McCafferty, join Forbes in calling for a rate hike. The asset purchase targets were unchanged: prior asset purchase target was 435billion and prior corporate bond purchase target was 1billion.
In the Monetary Policy Summary we can read that all MPC agree any rate increase should be gradual and limited. The CPI inflation could exceed 3% by autumn 2017 and the sterling's fall since the May inflation report will add to this if fall is sustained. The BoE's tolerance of the above-target CPI is being eroded as strong employment growth could suggest spare capacity. The UK wage growth remains weak even relative to historic norms, so it can further slow the consumer spending. At the end, the BoE revised Q1 GDP growth to +0.3%, and Q2 to +0.4%.
In conclusion, market participant were surprised by the voting results (there hasn't been a split like 5-3 since 2011) and hawkish tone of the policy summary. There was a talk of more QE or a rate hike in the future, but the BoE is headed in the other direction despite political uncertainty. The Brexit negotiations will begin on Monday, 19th of June. It looks like the BoE is seeing things differently than the markets and isn't sure what's happening in the economy or what will be the result of the negotiations, even if it will be favorable for the UK.
Let's now take a look at the GBP/USD technical picture on the H4 timeframe. The cable jumped right after the news release, but then slowly gave up all the gains. Currently, it is trading in the middle of the range in a sideways price action pattern. The next technical resistance is seen at the level of 1.2818 and the next support lies at 1.2690.
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