BOE Preview: No changes now, but Carney could impact GBP/USD in two ways

• The BOE is set to leave its policy unchanged amid high Brexit uncertainty.
• Upbeat economic data make a case for a rate hike after we get Brexit certainty.
• Comments in the meeting minutes can impact the pound in the short term and affect the future moves.

The Bank of England makes its rate decision on Thursday, March 21st, at 12:00 GMT. The BOE is set to leave its policies unchanged, with the interest rate at 0.75% and the Quantitative Easing program at £435 billion. However, the Meeting Minutes from the Monetary Policy Committee will be of interest. A unanimous 9:0 vote is on the cards.

Economic data in the UK has been quite upbeat. This week's jobs report showed that wages are rising at a robust pace of 3.4% YoY while the unemployment rate surprisingly dropped below 4% to 3.9%. 

The BOE is focused on inflation that ticked up to 1.9% in the latest report for February. The economy keeps on growing despite the immense Brexit uncertainty. 

The data all support a rate hike. The "Old Lady" may raise interest rates as early as August if we look only at the numbers. The summer meeting is the timing of the following Quarterly Inflation Report, following the May one, which may be too soon.

However, there's the big Brexit elephant in the room or occupying the large BOE building on Threadneedle Street. 

The growing uncertainty about Brexit has paralyzed all policymaking in the UK, and this includes the institution led by Governor Mark Carney. The UK will leave on March 29th unless an extension is granted. The latest is that the EU will decide on a delay next week, at the very last moment, and PM May still hopes to have Parliament approve the deal. Fears of a no-deal Brexit are mounting. 

Nevertheless, the MPC Meeting Minutes could impact GBP/USD in two ways:

1) Warnings about a no-deal Brexit

The BOE may reiterate its warnings of a no-deal Brexit. The forecasts for such a scenario were quite gloomy. A reminder would weigh on the pound. Moreover, the Bank could hint that it is ready to cut rates in such an eventuality. This is quite unlikely, but as the date is so close, anything can happen, and such a surprise could send the pound plunging.

2) Emphasizing the strength of the economy

Given the upbeat economic data mentioned earlier, the BOE could express its satisfaction and hint it is ready to raise rates. In the past, Carney said that the path of interest rate hikes might be higher than what markets are pricing.

A statement along these lines could boost the pound.

GBP/USD impact

It is important to note that any GBP/USD reaction to the BOE may be quite limited. Brexit remains left, right, and center, and will likely grab the headlines and the impact the pound shortly after the BOE data is out.

Yet after the Brexit drama moves away, markets could return to the words of the BOE and be influenced by them, depending on the scenario.

If the UK crashes out of the EU without a deal, a warning by the BOE could exacerbate the fall.And if an extension is granted, an upbeat statement by the Bank could add fuel to Sterling's rally.