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EUR/GBP Trading - BoE Interest Rate Expectations - 8 Feb 2017

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EUR/GBP Trading chart 08 Feb 2017
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GBP rallies as policy maker suggests rate hikes

The euro fell sharply against the British pound yesterday after the markets were surprised by the hawkish comments from of the BoE policy makers who suggested that rate hikes in the U.K. were needed. The speech which was scheduled to be released today was published a day earlier.

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Kristin Forbes laid out her view

Bank of England policy maker, Kristin Forbes laid out her view that a rate hike could be needed soon. In her prepared remarks, the policy maker said that she has become less tolerant to the overshoot of the BoE's 2% inflation target rate and if combined with the solid economic data, a rate hike would be the most appropriate response from the central bank.

The comments come just a week after the BoE's monetary policy meeting where interest rates were left unchanged. The policy statement suggested the case for a rate hike and a rate cut noting that an increase in wage inflation could spur the central bank to hike rates while weaker consumer spending would warrant a rate cut.

Inflation in the U.K. has been accelerating strongly boosted by higher international oil prices and weaker exchange rate. This prompted many policy makers to be flexible in allowing inflation to rise above the BoE's 2% inflation target rate.

However, some members such as Forbes are starting to turn hawkish, wanting to see rate hikes sooner. Later today, another policy maker, Jon Cunliffe is expected to speak and his comments will no doubt be closely monitored.

How we trade binary

The reversal seen in EURGBP yesterday is signaling a continuation of the downtrend from the previous weeks, after a brief retracement last week. Price action is likely to continue to the downside, but there is potential for a retracement back towards 0.8585. Therefore, it is recommended to purchase daily CALL options above 0.8540 for a 21:00 GMT expiry as EURGBP could be seen paring losses.

Asset: EUR/GBP
Direction: Call
Target price: 0.8540
Expiry: 21:00 GMT

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