Picking through the events of the Bank of England’s ‘Super Thursday’

One of the key skills involved in Forex trading is being able to predict, read and react to major events in different world economies. Some events come out of the blue and any trades you make must be purely reactive, whereas others are scheduled and frequently have a long run up.

Bank of England London United Kingdom

The Bank of England’s ‘Super Thursday’ was one event that was sure to have had traders glued to their TV sets and laptop screens. Three major pieces of BoE news – minutes from the policy-setting meeting, the Quarterly Inflation Report and, most importantly for forex traders, the latest decision on interest rates for the UK – were all released in the same package. This all took place on Thursday November 5, which is Bonfire Night in the UK. But was this news explosive? Or was it more of a damp squib?

Well, there was certainly a surprise for many with the announcement that interest rates would stay the same, at a record low 0.5%, for the sixth consecutive year. The rate has been close to zero since 2009, in the wake of the financial crisis and the Bank’s Monetary Policy Committee voted 8-1 to keep rates the same once more.

The thing that threw many traders this time around is that Bank of England governor, Mark Carney, gave clear indications in July that interest rates would probably start to rise by the end of 2016.

He said in July: “It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages.”

He continued: “In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”

Interestingly, after the Super Thursday announcement he was much more ambiguous about future rate rises, merely saying the BoE would “take our decisions at the right time”.

BBC economics editor, Robert Peston, wrote: “For City traditionalists, Mark Carney’s predilection for giving so-called ‘forward guidance’, which seems to date to have habitually gone awry, may have damaged his authority a bit.”

With traders finding the lack of interest rate movement surprisingly dovish on the part of the Bank of England, the pound immediately slumped. It fell more than a cent against the dollar, to $1.5243 and more than a cent against the euro, to €1.4020 by 16.30 GMT.

Darren Ruane, head of fixed income at Investec Wealth & Investment, described the Bank of England announcement as “more dovish than markets were expecting”. He went on: “A signal has been provided that the market’s expectations for future rate rises are too far away. The MPC forecast that inflation should hit 2.1% in two years based on current interest rate forecasts while CPI inflation is likely to remain below 1% until H2 2016m