The Bank of England meets on Thursday, and though COVID cases in the country appear to have peaked for this wave , the central bank is unlikely to make any immediate changes to policy. That said, there have been some hawkish sentiments emerging from the Monetary Policy Committee in recent weeks following a jump in inflation to 2.5% in June, the highest reading in three years and above the central bank’s 2.0% target. As such, traders will be watching to see if the BOE raises its inflation forecasts moving forward, hinting that the price pressures may be less transitory than expected. Finally it’s worth noting that the UK furlough scheme winds down at the end of September, so it will be interesting to see if the central bank acknowledges the potential for the labor market to weaken in the coming months.
GBPUSD has pulled back sharply from its near-death experience below the prior major lows around 1.3670 and is now pushing up close to . Given its tight correlation with the risk-off, risk-back-on episode starting around mid-month in July, the 1.4000 level could prove a tough to crack if the sense of foreboding, turns into a significant rout in risk sentiment, although there are other supports for this move, including the generally widening spread in short rates in the UK’s favour in recent months, which has the spread near the cycle highs and the highest level since….2015.