HOW TO TRADE NEWS EVENTS - THE BANK OF ENGLAND RATE DECISION
Good Morning Traders,
Recently, a question pertaining to forex news events, and most frequently being asked in the market is:
If the Bank of England raises its rates, how will it impact the Sterling pound?
Well, the wait will finally get over this week. As per market forecasts, the Bank of England is likely to announce its first ever rate-hike in a decade, and it’s expected to impact the Sterling Pound.
The BOE Monetary Policy and the minutes of the committee meeting are expected to be published at 12:00 noon on February 2019.
Why is the Bank of England’s interest rate announcement important to forex traders?
The monetary policy controls the cost of short term borrowings or the monetary base of a country. It targets the inflation rate by regulating the interest rates on short term borrowings so the prices of commodities can become more stable and people don’t start losing trust in the country’s currency.
Additional goals of the monetary policy include stabilizing the gross domestic product, reduce the unemployment rates and to keep the exchange rate of the currency predictable with regards to other currencies in the market.
Forex news events like BOE rate announcement tend to directly affect the forex markets. Early this February, the BOE’s policymakers shall meet again to decide the official bank rate for the year 2019. The announcement of the new bank rate as decided by BOE’s monetary policy plays a very important role in forex trading.
The forex markets remain more volatile for some time just before and after forex news events like the BOE’s rate declaration. The volatility continues till the rate is made public and forex traders have adjusted their trading strategies as per the changes in the rate. People investing their funds in forex markets have to decide whether to avoid trading and mitigate trading risks or to do a speculative trade and earn instant cash.
Traders prefer to remain updated about forex news events like the BOE rate announcement so they can plan a trading strategy ahead of time and be prepared for the market volatility during the particular trading period.
BOE’s interest rate trends over the years
The Bank of England’s Monetary Policy Committee, or the MPC, decides its policy with a fundamental objective of meeting the 2% inflation target and sustaining the market growth as well as the employment levels.
The rate has shown a gradual upward trend from 4th August 2016 to 15th June 2017 when it was 0.25%. From 2nd August 2018 to 20th December 2018, the BOE’s rate has remained stable at 0.75% while it had dropped to 0.50% between 2nd November 2017 and 21st June 2018.
As per BBC News online channel, BOE’s interest rate is likely to be “put on hold” as of now. With the inflation just touching 2%, the MPC is most likely to wait for the Brexit uncertainty to resolve itself and “get over” before the moving the interest rates again.
Since Theresa Mays’s Brexit deal is not strongly supported by the British parliament and there’re chances of a new Brexit deal being put in place as proposed by the Labour Party, Britain could look forward to an extended Brexit deadline, which can further create uncertainty regarding how forex traders should invest in currency markets and do their daily trading.
How do Platinum analysts foresee forex news events like the BOE interest rate and its impact on the Sterling pound?
Previously, the Monetary Policy Committee’s (MPC) meeting minutes released in September strongly stresses upon the fact that the BOE intends to raise its interest rates as inflation is still on the rise. It was at 3% last year. The UK economy is expected to face the worst post-Brexit predictions.
Considering the fundamentals, a hike in the interest rate from the BOE this week should, in theory, benefit the Pound. However, traders and investors are aware that forex news events like the BOE rate announcement can affect the markets, and an increase in the interest rate at this point of time will signal a slowing UK economy.
If the officials do move this week, as they are expected to do, it will be a one-off. The Bank of England will probably hike the rates at a slow and steady pace. One can’t ignore the fact that the Central Bank faces a very difficult position as it tries to control inflation on one hand and make efforts to boost the economy on the other during the Brexit transition. Brexit negotiations over the coming years could hold back investments and consumer spending way before the date of Brexit itself.
Trades on the Platinum Chart and Platinum System:
Before the BOE announces its release rate, we will practice intraday trades using the levels identified on the Technical Chart and the Platinum Trading Algorithm to refine our entry points.
On the event day, we will keep a close eye on 3rd and 4th zones for any reversals once the rate is announced by BOE. Our mentors and traders at Platinum never try to guess any fundamental release. We only trade after the result is out, and we can position ourselves according to our Fundamental knowledge and Technical Charts. We always have a bias, but we only trade with finesse. We monitor all major forex news events closely.
Initially, the Pound is likely to rise in value as the BOE increases its official rate. If such is the case, ideally we would like to buy on a spike into a Key Support. Platinum members are generally aware of such moves in the market. Banks and institutions will first force the market to go in the opposite direction, and subsequently, start buying. The impact of forex news events can be wide-ranging in currency markets.
In the event the BOE does not raise its rates, the Pound is expected to take a nosedive. It would be the best time to sell – On the spot. The reason behind this is because the market is certain of a hike by 9-0-0 on the MPC votes.
If you miss the actual event to buy or sell, it’s no big deal! You can also have the Platinum BPC trade on a Daily Close below or above a significant Support and Resistance. It is done using the Technical Chart.
Always keep in mind that trading Forex News Events is much riskier compared to any other kinds of trading. You need to apply perfect money-management techniques and avoid revenge trading at all costs if you’ve taken a hit. New opportunities shall come by if you’re patient and ready to wait for the best setups.
While trading forex news events one should always practice safe trading and rely more upon technical analysis and market trends, rather than speculate upon market rumors.
If you would like to know more about how the market responds to forex news events, get in touch with the Platinum team today – We’ll be happy to help and explain the entire trade process to you.
If you would like to know why this would be the case, get in touch with the Platinum Team today, and we will be happy to help and explain the trade.
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