Taking a Fundamental Approach to Forex Trading

Trading the Sterling with the BOE Rate Decision

The Bank of England (BOE), Know also as The Old Lady of Threadneedle Street, is the central bank of the UK. Although BOE was founded in 1694; it was not until 1997 when the bank gained its complete independence from the government. Since then, BOE has full control over the direction of the UK monetary policy. Thus, in order to keep inflation at its targeted levels (2%), the Bank's Monetary Policy Committee (MPC) meets for a two days affair every month. The purpose is to set the future course of the overnight interest rate.

MPC Structure:
The Governor
The Deputy Governor
Bank's Chief Economist
Executive Director of the Markets
4 external members appointed by the Chancellor of Exchequer

Whether the BOE tends to increase, decrease, or maintain interest rate, the decision always has a direct impact on the British Pound and this is why...

•	By increasing interest rate, the BOE is literally selling British government securities to major financial dealers who in turn would pay by transferring money to the BOE account. This would decrease the supply of the British Pound in the banking system and hence appreciate its value.
•	By cutting interest rate, the BOE is literally buying British government securities from major financial dealers who in turn would get paid by transferring money into their accounts from the BOE. This would boost up the supply of the British Pound in the banking system and hence depreciate its value.