The Bank of England (BoE) will issue a monthly monetary policy decision in addition to the quarterly monetary policy report and on these occasions fundamental directive changes are usually issued which can often encourage volatility in the forex currency market. July saw a number of MPC members present their views on the UK's economic outlook, with two - Michael Saunders and Dave Ramsden - saying that inflation levels risked staying above the Bank of England's 2.0% target for an uncomfortably high period.
As such, the time for an interest rate hike was approaching in their opinion.
The views led the market to pricing the first rate hike in 2022 which was seen as supportive of the pound. Expectations for at least one interest rate hike in 2022 to raise the base rate to 50 basis points by the end of the year have remained relatively stable. Whether the BoE's guidance tempts the "raise" date at the start of the year or pushes it back into 2023, it will have ramifications for the pound: if the date comes in, expect the pound to rise, and if it's pushed back, expect the pound to fall.
The British government will end its employment support programs in September, which could lead to a sharp rise in unemployment. Economists say the BoE will want to assess the size of the unemployment jump before setting a date for a future rate hike, something new BoE member Catherine Mann pointed out recently in her appearance before the House of Commons Treasury Select Committee.
Regarding today's most important event. Barclays expects the BoE to leave unchanged medium-term inflation expectations, which they say risks further dispelling recent market perceptions of the BoE's growing "hard-line" faction (Saunders and Ramsden). Barclays expects the committee to vote 7-1 to keep asset purchases unchanged, with Saunders effectively replacing Haldane as the maverick, leaving the MPC's overall view largely unchanged from the previous meeting.
The British government is allowing holidaymakers to visit more European countries without having to quarantine upon their return as it eases international travel restrictions due to the pandemic. The government said yesterday that from Sunday, the "green" travel list will be expanded to include Germany, Austria, Slovenia, Slovakia, Latvia, Romania, and Norway. This means that any Briton returning from those countries can avoid quarantine regardless of their vaccination status.
France has been placed under a special restriction category due to concerns about the variant of the coronavirus there. But from Sunday, fully vaccinated travelers from France will not have to be quarantined.
According to the technical analysis of the pair: Despite the recent performance, the GBP/USD currency pair still has the opportunity to correct upwards, as the performance on the daily chart is still in the phase of breaking the bearish trend. It is currently the closest to moving towards the 1.4000 psychological resistance. This motivates the bulls to take more control in case the sterling gets support today from the Bank of England decisions, or the dollar suffers a setback from the important US jobs numbers tomorrow, Friday. On the downside, a break below the support level 1.3770 will end the current bullish expectations. It must be taken into account that the currency pair is subject to severe volatility during today's and tomorrow's trading, so caution should be exercised.
The US dollar is on a date today with the announcement of the number of weekly jobless claims and the trade balance figures.
