MPC Split when Market Need a Consensus

Bank of England Monetary Policy Committee split three ways on setting interest rate, today's minutes showed. However, they seem to be more optimistic about inflation regarding recent sharp drop in oil and commodities prices. More concerns also reflected about the growth but it is not encouraging when there is no consensus to support it. The votes were similar to the previous meeting but the reaction to sterling was negative.

Case Study: Reaction to UK Retail Sales

MPC's minutes on Wednesday helped sterling to appreciate against major currencies when it showed that there was a vote for an increase in interest rate. It also showed that they want to have more data before any decision on changing the rate and it was when Retail Sales and GDP were ahead.

Retail sales in UK dropped the most in decades, -3.9 percent, and sterling depreciate in response. But I think the opportunity was missed well before the data:

• The best time for selling pound might be probably at the midnight of Central Europe, when technical data were increasingly showing divergence (e.g. RSI divergence and MACD crossover in GBPJPY chart).


• And before the release, some weak economic reports from euro-zone such as German IFO and Euro PMI in addition to this fact that more concerning data are ahead from US housing markets were a trigger to the market to buy back the Yen as reducing carry trading.

MPC Minutes; Policymakers want to have more data

Bank of England released the minutes of last MPC meeting today. In a relatively rare case the members split three ways in the decision to keep interest rate unchanged. Timothy Besley wanted an increase, David Blanchflower a reduction, when other six members voted to no change.

Market interpreted the situation as a strong resistance in MPC's view against rising inflation. For the day the British pound reacted positively to the news.

How to change a 90 pip loss to a 2 pip profit!

GBPJPY reached its support at 210.41, almost 90 pip against my position, but I decided to increase the size where I anticipate the risk technically low. I closed both positions, one in profit and other in loss, when the difference converged to zero. Less than 2 hours left to MPC Minutes so I see it too late to hold the position further.

Buying GBPJPY; taking position on BoE Minutes

In less than one hour left to US market close, I decided to buy GBPJPY to have a position on tomorrow MPC Minutes. I think the interest rate differential would work in favor of sterling, at a time when equity markets are struggling to pass inflationary pressures from soaring food and energy prices.

As always, there are some risks to the position. Japan Leading Indicator and BoJ Minutes of Board Meeting are ahead, though I think any effect would be temporary and should it come against my position it could make opportunity for increasing the size.

Regarding not encouraging data from US, buying GBPUSD would be an option especially if improvement takes place in technical aspects.

BoE Minutes; looking for ideas to play

The minutes of Monetary Policy Meeting will release tomorrow which is expected to clarify the latest position of MPC when they decided to keep rate unchanged despite signs of weakness in economy.

I think today jump in CPI could affect expectations from the minutes. I see it mostly in favor of sterling, at least in a short term. There is no doubt that investors don't miss time to reduce their assets in a country which increasing facing high inflation, but the problem is in finding a destination at the time that inflation turned to be a global phenomenon.