Start off right at the basics.
The ultimate driver of investment price is return - how much will I get back for my money and how long will it take.
In FX often a country’s interest rate is such a measure.
With GBP an experienced analyst commented yesterday that Brexit is driving price and the numbers are taking a back seat - there is a degree of truth in that comment - but check again.
Central banks decide interest rates, on Nov 7th past BOE decided to leave rates unchanged - as was expected. Yet on checking Nov 7th GBP fell. So how come?
BP calendar maybe does not show it but the rate is decided by a committee of 9 and they each have a vote (the MPC). These votes are published with the rate announcement.
If the driver of price starts with the Central Bank then anything that may come to their attention that helps form their decision making (such as inflation etc) then the market will react in the short term to those numbers - and sometimes it’s possible to get a handle before the release.
Back to Brexit et al - absolutely nobody expected a BOE rate raise in these times of uncertainty - that would have been very GBP positive but also BOE madness - and they are not that.
Would it have been possible to expect a cut? - unlikely, why rock a boat that is already being badly rocked?
So that only leaves the vote count - would they all agree to leave things alone? - right here was the possibility - interest rates are a tool that a CB uses to control inflation, raise when inflation is upward (slow economy down) , lower when going down to stimulate business/consumer spending & investment.
The BOE has a published policy of maintaining inflation at 2% uk inflation was at 1.7%
So thinking about likelihoods - would they raise (Gbp up)? - Not likely - would they Maintain rates - very likely (Gbp neutral) or would they lower (possible -Gbp negative).
So the rate decision was offering a likely Gbp neutral outcome - not much use to a trader.
What about the vote count (most calendars red flag it) what likelihood of impact on price?
0.0.9 was expected, i.e. zero to raise, zero to lower and 9 to keep everything as was (Gbp neutral)
Can you see where it is possible to take up a very safe position before this announcement on Nov 7th with a worst case scenario of Gbp neutral.
How many of the committee would raise their hand and say “Raise”, was there a better chance that at least one guy would say “lower”.