Wednesday, June 22, 2011

Bank of England - UK MPC Meeting Minutes - 22 June 2011

Bank of England - UK MPC Meeting Minutes - 22 June 2011

MPC Meeting Minutes is scheduled to be released today and since it´s customary for BOE (Bank of England) not to release a statement along with its interest rate decision (2 weeks ago) if there were no changes to either rate decision or APF (Asset Purchasing Facility, UK´s quantitative easing program); today will be the first time for a glimpse into what took place during this meeting, here is the forecast:

4:30am NY Time UK MPC Minutes Forecast 2-0-7 Previous 3-0-6
ACTION: GBP/USD BUY (4 Vote For Hike) / SELL (2 Vote For QE)

The Trade Plan

We will be looking at the vote count today. If we get 4 votes for hiking 25 basis points, we should see some strengthening in the Sterling and a BUY GBP/USD trade should be justified. If we get 2 votes for quantitative easing, or to increase the current APF from 200 Billion Pound, GBP should weaken and a SELL GBP/USD trade should be justified.

Due to the nature of this release, you need to have a newswire or audio service in order to trade it. We should see a steady market reaction after the release and possible carry over to the NY Session.

I´ll be looking for an after news retracement trade.

The Market

Recent data out of UK has been weak to say the least, as outlook for UK’s economy turned from neutral to negative with a real possibility of falling back into recession… The market is as confused as the members in the MPC, not knowing where Sterling is likely to stand in the short, medium term.

Here is what BOE official Fisher recently said: “…that there was no easy path for monetary policy to tackle present price shocks but the MPC should steer CPI gently back to target in the medium term. Inflation might stay above target for 2011 and 2012 period but added there should be no change to CPI target and ensure of no second round effects. The outlook for economy was uncertain and there were risks that UK economy proved weaker and morph into a more serious situation for policy. The BOE should accept the initial impact of price shocks as hiking interest rates earlier would have created volatility; Shocks not caused by monetary conditions but that the MPC was bound to raise rates if wages started to rise.”

Therefore, I’m inclined to believe that BOE will not hike rates until wages start to rise, and that would be most likely in 2012 than 2011… Therefore, there could be some limited sell-off on GBP after the meeting minutes if the entire MPC reflects Fisher’s mentality.

Additional Thoughts

It is my opinion that GBP is facing strong headwinds and likely to be under pressure… I would stay clear of it until after this release…

Pre-News Consideration

There should be no pre-news trading, but if I were a betting man, I would SELL GBPUSD prior to the minutes…

by Henry Liu