Contrary to forecasts of economic analysts and investors, Bank of England (BOE) on 14th of July ended policy meeting by deciding to keep the interest rate at record low 0.5% maintained for more than 7 years, and have not made any changes to the program of 375 billion pound quantitative easing (QE) made from November, 2012.
BOE's decision surprised a lot because before the meeting, participants of market forecasted with probability 70%, BoE will cut rates from 0.5% to 0.25% to support economy deal with risk of depression after the voters of this country voted to leave EU. Even BoE Governor Mark Carney has issued clear signals about the possibility of lower interest rates in the context of deteriorating economic outlook.
In the minutes of the meetings published immediately afterwards, BOE said the agency did not change monetary policy until there is a more complete assessment of impact of Brexit for UK economy. Besides, most members of Monetary Policy Committee (MPC) of BOE have endorsed the easing monetary policy in August, if the economic outlook does not improve.
Shortly after BOE announced this decision, GBP / USD soared nearly 2% to 1.3470, the highest level of 3 weeks before falling partially. Although the recovery of British pound is likely to continue, but this currency is expected to drop again in the near future.
Japanese yen continued strong downtrend since the beginning of the week and in this morning USD / JPY exceeded 106 level, 3-week high as the market continues to expect Bank of Japan (BOJ) will strengthen the easing monetary policy by expanding bond purchase program at a meeting of the agency on July 27-28th. After the landslide victory of the ruling coalition of Prime Minister Shinzo Abe at the Japanese Senate elections, observers are expecting a fiscal stimulus package will be announced in future.
GBP: BUY 1.335 TARGET: 1.3520 STOP-LOSS: 1.3260