BoE: Carney's hands tied this month

The Bank of England is going to have its monetary policy meeting this Thursday, but is largely expected to maintain rates and the APP unchanged this month. Focus will therefore turn towards the quarterly inflation report, and the following Minutes of the meeting.

Inflation remains subdued all across Europe, and the United Kingdom is no exception, as according to the latest readings, prices fell by 0.1% year on year in September, for a second time this year. However, wages posted a solid growth during the third quarter, partially neutralizing the negative mood triggered by falling inflation. 

The inflation report is expected to reckon that near-term inflation will remain depressed, but markets still believe the Central Bank is getting ready to raise its rates during the first half of 2016. Also, investors will be watching closely how the MPC votes as so far only one of the nine voting members has pledged for a tighter policy. 

Governor Mark Carney has anticipated that he will be giving clear clues on when the Central Bank will decide to change its economic policy before the year end, but being realistic, the BOE will likely refrain from establishing a date, and here is why: low inflation is also being accompanied by a relatively high value of the local currency. Speculative buying, should they pull the trigger, should made its currency even more expensive, which will affect consumption and therefore send inflation even lower. 

Pretty much, Carney is expected to do as Draghi from the ECB: let the US Federal Reserve do the dirty work first, triggering a strong dollar rally, and therefore preventing the Pound from appreciating too much when they finally begin tightening their economic policy. And given that the FED has not provided a clear date for a rate hike, despite the hawkish tone from October statement that opened the doors for a move in December, the most likely scenario is a vague wording from the BOE regarding a certain date.

Effects on the GBP/USD

Nevertheless, if officers remain confident on the future, acknowledge the latest strong manufacturing data, and don't express concerns over inflation, the Pound can get a nice intraday boost. Gains however can be limited after the initial spike, as investors will likely enter in wait-and-see mode ahead of the US Nonfarm Payroll report to be released early Friday. 

Technically speaking, the GBP/USD pair presents a pretty neutral stance daily basis, given that the pair has been stuck below the 1.5500 level ever since late September, but buying interest increases on dips. In the same chart, the pair presents higher lows in the same period, whilst the price struggles around a bullish 20 SMA ahead of the Super Thursday. 

A dovish surprise from the BOE may see the pair declining towards the 1.5250 level, a strong mid-term support, as it will highlight the imbalance between both Central Banks, albeit further declines don't seem likely. Shorter term, the immediate target comes at the 1.5300 level post-release. Yet if the Bank of England comes with a strong hawkish stance, the GBP/USD pair can rally back to 1.5500, although will hardly extend beyond it, at least on Thursday, and ahead of the US employment report.