The dollar has extended gains in recent sessions. It is not because of any fundamentally positive change but because the buck is the best of a bad bunch.

Earlier in the week the Aussie dollar dived as the RBA opened the door to easing. Overnight the New Zealand dollar experienced its worst day in a year after a weak employment report. Today attention switches to the BoE and the pound.

No change to policy expected

The BoE is widely expected to keep policy unchanged when it makes the announcement at 12:00 GMT. The central bank is also expected to lower the already lackluster growth forecasts as Brexit uncertainty continues to weigh on the economy; a reflection of the fact that there is still no deal in place with just 50 days to go until Brexit.

Given that there is no transition deal in the bag, the BoE’s options are limited. The direction of the UK economy and monetary policy depends firmly on what type of Brexit the UK achieves, an orderly exit or disorderly.

With Brexit clouds limiting the BoE’s vision and therefore options, anything other than a wait and see approach is not viable. Theresa May is still scrambling to get further concessions, whilst European Council President Donald Tusk couldn’t have made himself clearer; there will be no new proposals to replace the Irish backstop arrangement. We expect the BoE to continue to warn over the economic consequences of a no deal Brexit. But to say that it is not the expected path. The central bank will also stick to the one hike per year song sheet.

Growth trimmed in quarterly inflation report

With the BoE’s hands tied on monetary policy, the quarterly inflation report is much more likely to catch trader’s attention and move the pound. The BoE will have two contradictory trends to consider relating to its principal policy target, inflation. Firstly, declining oil prices from the oil slump in Q4 of 2018 easing prices at the pumps although this could be considered short term. Meanwhile wages growing at the fastest pace in a decade whilst the labour market continues to tighten will lift inflation prospects and is fundamentally more important to the BoE. In November the BoE saw inflation remaining just above 2% for the next two years.

The BoE said it expected growth to hit 1.7% in 2019, 2020 and 2021. After lead indicators have weakened significantly over recent months and given signs of a global slowdown, we expect the BoE to trim growth forecasts. This could dampen demand for the pound. The next quarterly inflation report is in May, when Brexit should also have been decided one way or another. In the case of a Brexit deal, May would be the prime candidate for a rate rise.

The pound has slumped below support at $1.30 as Brexit hits sentiment from all sides. There, is no solution to Brexit in sight, the UK economy is suffering under the strain of Brexit and there is talk of extending the uncertainty. A dovish Carney adding to the pound’s woes, could send it tumbling towards $1.28.

This information has been prepared by London Capital Group Ltd (LCG). The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. LCG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. Spread betting and CFD trading carry a high level of risk to your capital and can result in losses that exceed your initial deposit. They may not be suitable for everyone, so please ensure that you fully understand the risks involved.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Forex Analysis

Editors’ Picks

EUR/USD pressured below 1.0950 after ADP, ISM beat

EUR/USD has is trading below 1.0950, under pressure. ADP's private-sector jobs report has shown a loss of only 27,000 jobs, far better than expected. The ISM Manufacturing PMI also beat with 49.1 points.


GBP/USD battles 1.24 as UK coronavirus death toll jumps by 31%

GBP/USD is trading around 1.24 The market mood is gloomy as coronavirus continues spreading. The UK's death toll jumped by 31% to 2,352. Markets are digesting US data.


Oil prices are poor predictors of recession

Crude price movement before last five recessions are ambivalent. WTI has fallen 66% since January 7 to its lowest price in 18 years. Previous sharp drops in oil did not anticipate downturns.

Read more

Gold: USD 1600 is the major pivot level but is the retracement over?

Gold has been pulling back up since the recent low on March 16th. It's amazing to think that in these uncertain times the price fell to hit a low to USD 1451.32.

Gold News

WTI drops to $20 area after EIA reports huge increase in US crude oil stocks

Crude oil prices came under renewed selling pressure in the last hour after the weekly report published by the US Energy Information Administration (EIA) showed a huge build-up in crude oil stockpiles.

Oil News

Forex Majors