Forex Signal (Thu March 10 2011, 7:00am NY Time EST) - UK BOE Interest Rate

Henry Liu

Former FPA Special Consultant
BOE (Bank of England) will be rendering its interest rate decision today, and it would provide strong volatility in the market if BOE's final decision turns out to be a surprise, here's the forecast:

7:00am (NY Time) UK Official Bank Rate Forecast 0.50% Previous 0.50%
APF (Asset Purchasing Facility) Forecast 200B Previous 200B
ACTION: GBP/USD BUY 0.75% (Rate) SELL 225B (APF)

The Trade Plan
In the extremely unlikely event BOE hikes rate to 0.75%, we'll buy GBP/USD immediately on a spike trade. Because of the level of this surprise, I think we'll see a strong trend change for GBP in the next few weeks, so we should BUY and keep a small portion for larger gains...

On the other hand, if we get a surprise increase in the APF or better known as quantitative easing, it would send a bearish signal to the market, and we should SELL GBP/USD immediately.

I'll be trading this release using my Spike Trading Method, for more information:
Henry's Trading Methods.

The Market
UK’s BOE, Bank of England’s Monetary Policy Committee (MPC) is once again scheduled to release their interest rate decision today and the expectations are to keep both their official bank rates at 0.50% and APF (Asset Purchasing Facility) of 200 Billion Pound unchanged, according to all 61 economists surveyed by Bloomberg.

The important focus as usual will be the accompanying BOE Statement if they decide to release one, and it is customary for BOE to only release a rate statement if there is a change in either the Interest Rate or the APF.

During last MPC Meeting, 3 members voted for a rate hike, with Sentance voting for a 50 basis point instead of the usual 25. This has added speculation that BOE may hike interest rate today, although all analysts surveyed by Bloomberg feel that it may be too soon for BOE to hike rates today.

If we do not get a surprise rate decision today, the key will be the MPC Meeting Minutes where we can get more information on BOE's current monetary policy direction.

Additional Thoughts
If BOE surprises the market, we should enter on a BUY immediately because we should see strong demand for GBP and this demand will be sustained for weeks... so it doesn't really matter if you get slipped 50 pips or your broker widened your spread, it should work out in the end...

If BOE decides to keep everything unchanged, we should stay out of the market as there is no reason to be in.

Pre-News Consideration
We might see some pre-buying of GBP as a result of speculation. Recent CPI showing inflation remaining high which adds more speculation to a tightening gesture from the MPC.

Historical chart and data for UK BOE Interest Rate


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Thanks for the and great trading strategy Henry. I went short on AUS/USD 2 hours after the announcement and have squeezed 80 pips so far. Looks like that was the catalyst for a significant correction.