Today will be a big day for sterling traders with the Bank of England Quarterly Inflation Report, Rate Decision and the speech by BoE Governor Mark Carney. While the BoE is not expected to change its monetary policy, traders will be looking for clues on policy makers' thinking and await the outcome of the inflation report. As the June 23 referendum draws closer, the British pound is exposed to risk and any Brexit-related concerns remain a main driver in the currency pair. Even though Carney may emphasize that a potential Brexit entails a high risk for the financial stability in the U.K., he will have to avoid taking a position on any campaign.
The focus will mainly be on the inflation report and whether the central bank will raise its inflation forecasts. If inflation and growth forecasts have been revised higher, sterling could soar as a result. From a technical perspective, we still focus on a sustained break above 1.4480 in order to buy GBP towards higher levels. Yesterday's rise above 1.4480 proved to be only short-lived and sterling traders had to face volatile but unsteady sideways swings without clear trends. We expect larger movements today in the GBP/USD and pay close attention to upside breaks above 1.4490 and 1.4520 and, on the bottom side, a downside break below 1.4390.
The BoE Inflation Report is scheduled for release at 11:00 UTC along with the BoE Rate Decision, while Carney is scheduled to speak 45 minutes later.
The euro traded higher against the U.S. dollar but the 1.1450-level proved to be a short-term resistance as expected. If the euro climbs back above 1.1440 we see a next hurdle at 1.1470 from where it may reverse. In case the currency pair is able to trade significantly above 1.1470/80, euro bulls may push prices up towards 1.1520/40. However, on the downside the 1.14-barrier will be in focus and once this level is significantly breached to the downside we could see the euro falling towards 1.1335.
Eurozone Industrial Production is scheduled for release at 9:00 UTC but this report is not expected to have a major impact on the currency.
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