Watch for Surprises from the Bank of England

The Bank of England is widely expected to leave interest rates unchanged tomorrow at 5 percent but currency traders should be prepared for any surprises.

Economic data has been very weak with the service, manufacturing and construction sectors contracting at the same time, which is the first in 7 years. The latest piece of bad news in a string of disappointments has the UK economy at risk of falling into a recession. In the month of May, the visible trade balance narrowed from –GBP 7.527B to –GBP 7.494B. This was worse than the market expected, but the difference was not meaningful enough to impact the British pound. Instead, the currency actually strengthened against the greenback, which struggled throughout the US trading session. When the Bank of England leaves monetary policy unchanged, they usually do not release a statement. However they did in 2007, which means that it could happen again. Meanwhile there is a tiny chance that the BoE could lower interest rates given the recent turn in growth – either way, any surprises would probably be pound bearish.