Global macro overview for 10/05/2018

The decision of the Bank of England will be published on Thursday, May 10 at 01:00 pm GMT. Market participants expect the interest rate to stay at 0.50%. Together with the decision, the Inflation Report will be published with economic forecasts.

In the data from the last meeting, the biggest blow was a terrible GDP growth reading after the first quarter, which showed a minimal increase of 0.1% (the slowest since the fourth quarter of 2012). Difficult weather conditions in this period are indicated as the main culprit, although there are also no votes, can everything really be dumped for a prolonged winter? On the other hand, the labor market remains strong, wages accelerate and outpace inflation, and the unemployment rate has already fallen below the NAIRU equilibrium level. And if it was not for fear of Brexit, BoE would have started aggressively tightening politics for a long time.

Hence, although in the description of the data already published, the BoE message should contain a dovish language with regard to growth and inflation, it is doubtful that the bank would opt for a clear revision of the outlook under the influence of one weaker series. A potential hawkish risk is to downplay readings from the first quarter as charged with one-off events. A new projection assuming a rebound in the second quarter will be an additional argument that the bank will look for an opportunity to raise earlier. The distribution of votes in the vote to keep the interest rate to stay at 7-2 with Saunders and McCafferty opposed, but the risk lies in the third vote for the increase from Vlieghe. In his last comment, Vlieghe pointed to the strength of the labor market and the need to remove the monetary stimulus earlier. The change in the distribution of votes to 6-3 confirms that the bank does not pay much attention to weaker data and remains at the "three hikes in three years" rate set in February.

Expectations for a rate hike have moved away in time and the market is discounting the full hike only in November 2018. It is difficult to imagine that at the conference President Carney would even further weaken these expectations and, in the worst case scenario, he would repeat that the hike this year is "probable". Given the impetus that the market abandoned long positions in the pound in the second half of April, now the bar for hawkish surprises should be suspended quite low and it will be easier to start a fresh start in rebuilding GBP.

Let's now take a look at the GBP/USD technical picture at the H4 time frame before the BoE interest rate decision is made. Two possible scenarios are available here and both of them depends on the nature of the BoE statement. In a case of a dovish statement from BoE, the market should remain in a horizontal consolidation zone between the levels of 1.3486 - 1.3608. On the other hand, any hawkish statements or comments from BoE will likely result in a breakout above the technical resistance at the level of 1.3608 and an impulsive and sudden move upward towards the levels of 1.3708 and even 1.3889.

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