Bank of England should prompt a spike in volatility

Monday morning trade may be lacklustre, but sterling watchers are advised that volatility will spike come Thursday.

Charles Purdy, Director of Smart Currency Exchange, says:

"All eyes will be on Thursday as the Bank of England will meet for the second time with Mark Carney as the new Governor. Last week there was increased speculation that we could see a possible change of stance with regards to monetary policy so traders will be watching even more closely than usual.

"The markets will likely be nervous in the run up to the release and then we could see big moves once the Monetary Policy Committee have announced any changes or lack there of."

US dollar to dominate the GBP/USD equation until Thursday

Expect the US dollar to remain the key driver of the Pound / US dollar exchange rate equation, particularly in the first half of this week.

For now, the US dollar remains under pressure.

Jeremy Cook at WorldFirst says:

"The US dollar has started the week poorly, continuing the slide it began to experience in the wake of the Hilsenrath Wall Street Journal article. Fears that tomorrow’s Fed meeting may see the FOMC come over as more dovish than most had expected, with possible changes to inflation or unemployment targeting, has stymied any hope of a rally in USD for now. They announce their thoughts tomorrow at 7pm BST."

Greg Gibbs at RBS says currency market makers will also be keeping an eye on US data:

"The USD has started the week softer again. However, the outcome this week will depend on Q2 GDP on Wednesday and payrolls on Friday. The FOMC statement is likely to be little changed with most anticipating tapering to begin in September at the earliest."

Outlook for the US dollar

Sean Lee at FXWW also points out that the USD has started to lose its shine and the market is trimming longs at the moment:

"EUR/USD short-term technicals show consolidation between 1.3250/1.3300 whilst the longer term picture shows sideways range trading roughly between 1.2750/1.3400.

"Looks to me as if we get further sideways movements, just a matter of picking the ranges as always. I prefer the buy-big-dip strategy but selling intraday rallies towards 1.34 also has its attractions."

Further ahead, Luc Luyet at MIG Bank says that next week's Bank of England inflation event could be negative for the Pound versus US dollar rate:

"We believe that the BoE's announcement on 7 August should have a negative effect on GBP/USD.

"GBP/USD is retracing some of its 25 July advance. An initial support is given by the low of the rising channel (around 1.5325). Another support is at 1.5263. Resistances can be found at 1.5477 (25/06/2013 high) and 1.5531 (21/06/2013 high, see also the 200-day moving average)."