The naysayers are caught short

Today should see interest spike in the British pound, we forecast a volatile session that will surely set the tone for GBP in coming weeks. The big event is that of the release of this month's Bank of England MPC minutes, in addition we have employment numbers to digest on the economic front.

Highlights:

@9:30: Good employment data boosts sterling
@9:42: Sterling in dramatic surge as Bank of England MPC vote unanimously to keep QE on hold  
@11:16: RBS see threat of quantitative easing riding into the sunset 

16:13: The agenda for sterling on Thursday dominated by retail sales data

 Thursday brings with more economic data. However, we suspect sterling direction will continue to be driven by larger themes such as central bank policy. Nevertheless there could be some movement should any surprises emerge.

The key event comes at 9:30 in the form of Retail Sales (YoY) (Jun).

Expectations are for 1.7 pct, down from last month's 1.9 pct.

15:43: US dollar strengthens

The US dollar has strengthened wiping away sterling's post-BoE gains. Gold in fresh sell-off.

Bernanke's testimony to the US Congress is ongoing. Expect more volatility.

14:44: Over to events in the US now…

The Bank of England MPC event has passed - attention squarely focused on the US Congress. This is of utmost importance for the GBP-USD.

12:40: GBP gains have been appropriate - further advances could be capped

Stephen Gallo on why we haven't seen sterling gallop higher:

"FX market positioning and event-risk aside, the GBP in our opinion has shifted upwards by no more or less than it really should have: the BoE still want interest rates suppressed, and better economic data shouldn’t have the same positive impact on the GBP in terms of magnitude until the  BoE tells us rates may be too low."

12:10: Warning - the Bank of England remains dovish

Should GBP be higher following July's unanimous vote against QE at the Bank of England?

The answer is "no" says Ross Walker at RBS, in fact the Bank of England is still a dove… a must read.

11:16: RBS say quantitative easing now fully off the table

The threat of quantitative easing has evaporated says Ross Walker at RBS:

"MPC Doves in retreat with a 9-0 vote on QE gilt purchases. RBS view: QE is now fully off the table in 2013 and probably 2014."

Why is GBP not higher?

11:03: Sterling's detractors caught short

Mark Deans at Moneycorp joins Stephen Gallo at BMO Capital in questioning the market's thinking in selling sterling ahead of today's MPC Minutes:

"As suspected, sterling's antagonists were not in the mood to bother themselves with the need for evidence of its misdeeds; it was in the wrong place at the wrong time and it paid the price as investors stood their ground. UK headline CPI inflation came in at 2.9% for the year to June, close to - but crucially just short of - the top of its permitted 1% - 3% target range.

"For the majority of investors that was proof enough that the new Bank of England governor would be able to use his charismatic charm to persuade another two members of the Monetary Policy Committee (Paul Fisher and David Miles are already converts) to join him in voting for a further round of asset purchases."

10:25: Carney never wished to devalue the pound

Andy Scott at HiFX:

"Today’s minutes will provide some much needed relief for sterling which has been the talk of significant decline for weeks. The recent data from the economy has been indicating pick up in activity which we have sighted as reason why the MPC may refrain from additional Q.E. The impact on sterling of more Q.E. would have likely been for it to weaken and this may also have played a part since Mr Carney stated some months back that it was not his wish to significantly devalue the pound."

9:42: Bank of England Minutes fire-up GBP

UK's sterling surges, gilt yields surge, on the BoE minutes where the entire committee voted to keep rates and QE unchanged.

9:35: Sterling powers higher

The jobs data out of the UK economy has helped sterling.

GBP-USD is 0.34 pct higher at 1.5213. GBP-EUR is 0.4 pct up at 1.1566.

9:30: UK employment data positive

UK employment data shows the unemployment rate remains steady at 7.8 pct, BUT the number of jobless claims has fallen sharply, job growth slowed in May.

8:42: Intense interest in MPC voting patterns

Lloyds Bank Research:

"Domestically, the focus of attention will be on the minutes of the July MPC meeting, Mark Carney’s first as governor. A dovish post meeting statement has already raised expectations of new policy measures at the next meeting, including some form of forward guidance.

"The minutes will be watched for any further detail on this, in particular how much support the policy would receive from the committee as a whole and any indication on what form the guidance could take.  There will also be intense interest in the voting pattern at Mark Carney’s first meeting. We expect this to show an 8-1 spilt with only David Miles voting for more QE."

8:35: Exchange rates ahead of the minutes

The British pound sterling (Currency:GBP) is in the red against the bellwether currencies we follow. Expectations ahead of today's events are clearly low:

The pound to euro exchange rate is 0.23 pct in the red at 1.1493.
The pound to US dollar exchange rate is 0.4 pct lower at 1.5099.
The pound to Australian dollar exchange rate is 0.18 pct higher at 1.6418.

Be aware that the above quotes are taken from the wholesale markets - your bank will affix its own discretionary spread to the numbers. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering more currency. Please learn more here.

8:30: Warning on more suffering for the British pound

Ahead of today's main event, UniCredit Bank say:

"Sterling is likely to further suffer if the BoE minutes confirm dovish rhetoric this morning, but Ben Bernanke’s testimony could offer cable a floor and make a full drop much below 1.50 quite challenging. In turn, EUR-GBP may further consolidate gains above 0.87."