Event Trading Guide: BOE Monetary Policy Decision (June 2022)

Ready for another big event to trade this week?

Here’s why you should consider playing the BOE monetary policy decision on June 16, 11:00 am GMT.

Let’s have a quick rundown of what happened in their earlier statement, how GBP pairs reacted, and what’s expected this time.

What happened before?

• BOE hiked rates from 0.75% to 1.00% in May decision
• MPC voted 6-3 to hike by 0.25%, minority voted for 0.50% increase
• Policymakers pointed to sharp inflation as main reason for hike
• U.K. CPI projected to keep rising while GDP likely to slow

As expected, the U.K. central bank hiked interest rates by 0.25% in their May decision, following another 0.25% increase back in March.

Minutes of their monetary policy pow-wow revealed that majority of the committee members voted for a 0.25% hike while some had pushed for an even more aggressive 0.50% increase.

As it turns out, these three hawkish dissenters (Haskel, Mann, Saunders) were worried that inflation could surge wildly out of their control if the BOE moves too cautiously.

However, BOE Governor Bailey warned about the potential shocks of a large hike to consumer spending and borrowing activity. Talk about finding yourself between a rock and a hard place!

How did GBP pairs react?

Pound traders weren’t so impressed by the meager 0.25% hike in May. Based on the reaction of GBP pairs below, you could say that they were actually very disappointed!

Sterling sold off sharply against its peers during the actual announcement, as traders might be pricing in a “too little, too late” scenario for the U.K. economy.

What’s expected this time?

• BOE expected to hike interest rates by another 0.25%
• Some still predict a 0.50% increase due to persistent inflation
• MPC member Ramsden to join the hawkish camp?

The BOE might still take its own sweet time when it comes to tightening monetary policy, hiking borrowing costs by another 0.25% this June.

Keep in mind that the April CPI printed yet another sharp jump in price pressures, reaching a jaw-dropping 9% year-over-year increase. Energy prices have rallied since, which means that policymakers have to act fast if they want to keep consumer prices in check.

Also, the labor market is already lookin’ tight, putting additional upward pressure on wages as firms struggle to attract more workers.

With that, some are still hoping to see a much more aggressive move from the BOE this month. An increase of 0.50% could ease inflation fears, although it could also mean some damage on business and consumer activity.

Earlier this week, the U.K. printed back-to-back monthly GDP contractions, as well as a steep decline in manufacturing production. Consumer spending already slumped to record lows in April while business sentiment has dipped to its weakest level so far this year.

Another cautious 0.25% hike could mean another leg lower for the pound while a surprise 0.50% increase could spur a bounce. Either way, make sure you manage your risk properly when trading the event!