Giles Coghlan LLB, Lth, MA
Financial Source
That’s what the seasonal bias says from a historical event perspective.
Over the last 23 years, the seasonal pattern around a Bank of England Rate hike looks like this on the GBPUSD pair. On the day before the hike, the GBPUSD pair tends to weakness on the decision. The next couple of days sees further weakness before the GBPUSD picks up higher over the next 7 days.
So, typically, markets know when a rate hike is coming which is why it makes sense to see the GBP selling off on the decision. It’s a clear 'buy the rumour, sell the fact response'. However, what is interesting is the way the GBP has recovered higher after a couple of days lower.
Can this provide a strategy for today’s BoE meeting as markets are pricing in an 86% chance of a rate hike?
Major Trade Risks: The major trade risk here is if this seasonal bias around events does not play out again this year.
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