Bank of England Stays the Course; Rates Expected to Stay Low Until Q4

The Bank of England surprised no onethis morning when its Monetary Policy Committee voted to make no changes to itsbenchmark interest rate while leaving its quantitative-easing programunchanged.

The Bank of England surprised no onethis morning when its Monetary Policy Committee voted to make no changes to itsbenchmark interest rate while leaving its quantitative-easing programunchanged.

It’s been almost two-years since theBoE cut its official lending rate to a record low 0.5% and 11 months since thecentral bank completed the bond purchase portion of its 200 billion Poundquantitative easing program.

Since no changes were made,investors will have to wait until January 26 for the release of the BoE minutesto see how the decisions were reached. Traders will most likely be interestedin inflation rate discussions and how the members voted.

The primary discussion most likelyfocused on increasing concerns over the long-running above-target inflation.Projections are for consumer price inflation to continue to rise above thecentral bank’s 2% target.

The majority of BoE policy makersprobably voted not to make any policy changes to assess the impact of thegovernment’s planned austerity measures. MPC members are counting on the theorythat spare capacity in the economy will weigh on price pressure.

In following suit with previousmeetings, the MPC vote was probably determined despite a three-way split amongmembers. The basis for leaving monetary policy unchanged this month was likelybased on the thought that the Bank of England will refrain from hiking ratesuntil the fourth quarter. The primary driving force behind the low rates willbe a soft labor market.

Technically, the main trend is downon the daily chart. Currently the market is making a retracement of the mainrange of 1.6299 to 1.5345. This means 1.5822 is the next likely target anddecision point.

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James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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