What is the best possible day for a British pound rally next week?

We suspect that the focus for GBP and sterling rates shifted to the forthcoming August Inflation Report (due August 7th) long before the release of Q2 GDP this week, and this probably helps explain why, since the middle of the month, the GBP has clawed its way back from only a portion of its early July losses which were driven by the BoE’s July statement.

This says a lot, especially in the case of the small decline in the GBP versus the EUR for the month, given the weaker growth dynamic for the Euro Area as a whole, relative to the UK’s.

Judging by the shift in OIS rates, the BoE’s July statement will have tipped the market towards expecting another set of “dovish” headlines with the August Inflation Report.

We suspect that the balance of headlines in the August Inflation Report will be rather split between language focused maintaining momentum within the interest rate-sensitive sectors of the economy, and improving the Bank’s broad communication strategy with the financial markets.

New measures such as televised monthly press conferences, much like the ECB’s, should not even be ruled out, however, this doesn’t change the fact that in the run-up to August 7th, speculators will probably err on the side of caution to the downside in the GBP.

We think rate-driven rallies in the GBP next week will be rather limited, and we look for GBP/USD gains to be capped below trendline & Fibonacci resistance around $1.5550-$1.5570.

We’ll see next Thursday if the first step in the BoE’s new communications strategy is to start issuing a regular monthly statements following MPC meetings.

No change to the July statement next week, or no statement at all, will probably leave Thursday as the best possible day for a GBP rally – especially if the July PMIs are firm – but we still think the aforementioned levels or lower will hold on USD declines versus the GBP.