Today holds the potential to create a lot of volatility for GBP with both the April Bank of England monetary policy meeting and the Scottish elections being held. With the UK currency having settled into a range against the Dollar over recent months GBP traders will be welcoming the chance to make a decisive break one way or the other.
BOE Tapering in Focus Today
Looking at the BOE meeting first off, there are plenty of upside risks today. The market is broadly expecting the BOE to upgrade its economic forecasts in light of the vaccination progress and the ongoing reopening of the economy. However, the bigger focus at today’s meeting is on whether the bank announces tapering. BOE tightening expectations have been on rise over recent weeks given the success of reopening and the government’s vaccination effort. With this in mind, the announcement of tapering today would likely lift GBP encouraging bulls that they are on the right track, taking GBP higher. Any decision to delay tapering, however, would likely see Pound come under pressure.
However, even if the BOE does taper today, given the level of expectations, the greater focus will be on the forward guidance and whether such tapering is likely to be part of a signal that BOE monetary policy is taking a more hawkish shift, pointing to the earlier removal of stimulus and tightening of policy. If the tapering, however, is seen as more of an isolated manoeuvre, this again could see some disappointment selling in GBP.
Downside GBP Risks into Scottish Elections
Looking at the Scottish elections next, the key focus today, there is also potential for a significant FX impact. Given the increased conversation recently around a fresh Scottish independence referendum, the prospect of a win for the SNP today holds the power to weigh heavily on GBP. Recent polls have reflected a widening majority for the SNP which could see them achieving an outright majority in parliament, in which case a referendum looks like a done deal. Even if the SNP doesn’t achieve an outright majority, it seems more likely that it would end up in a coalition government with other pro-independence parties, again keeping the focus on a referendum, increasing political uncertainty in the UK and creating downside risks for GBP.
The recent rally off the 1.3676 level in GBPUSD saw price testing the underside of the broken bull channel and the 1.3997 level which has held as resistance for now, keeping price within the range between those two prices. For now, the focus is on further upside until the 1.3676 level has broken. Below there, focus shifts to the 1.3461 level next.
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