Sterling held above 1.32 against the dollar early Thursday as traders eagerly await the  Bank of England’s policy meeting today. Bond yields declined from July highs but remained elevated, as some market participants believe that the BoE may surprise, with a 25-basis point rate hike.

Although the central bank kept policy unchanged on 15 June, three MPC members voted to hike interest rates. This was followed by hawkish remarks from BoE’s Governor Mark Carney and chief economist Andy Haldane, that a rate increase may be needed despite a weakening economy. The shift in policy stance led to repricing of U.K. assets, sparking the 4% rally in GBPUSD, which was also supported by a broadly weaker dollar.

I do not expect the outcome of todays’ meeting to result in a rate hike. Firstly because consumer prices slipped from 2.9% to 2.6% in June, suggesting that the central bank may need to assess whether prices will ease further, after topping out in May. Secondly, there’s still no clear transition deal for Britain’s relationship with the EU after Brexit. I believe these two factors will keep the BoE on hold for now, but this does not necessarily mean the rally in GBP is over.

Kristin Forbes’ departure from the BoE will likely lead to a 6-2 vote in favor of keeping interest rates unchanged today, with Ian McCafferty and Michael Saunders to remain the two dissenters. Silvana Tenreyro, who replaced Forbes is most likely to join the doves for now. The most interesting member to watch is Haldane. If he decides to join the hawks and vote for a rate hike, this would lead to further appreciation in both bond yields and the pound.

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Another element traders should focus on, is the Quarterly inflation report. If the BoE wants to prepare markets for policy normalization, this needs to be reflected in the inflation report, which is released along with the rate decision. In May, the BoE forecasted the economy will expand 1.9% in 2017, and inflation will increase to 2.7%. Since the release of the report, Q1 GDP was revised lower to 0.2% and Q3 GDP picked up only slightly by 0.3%. Real wage growth continued to decline, consumer confidence dropped, and most PMI’s indicated  slower activity. The only bright spot was unemployment falling further to 4.5% from 4.6%. As a result, I think the BoE will lower their GDP forecast for the rest of the year, and probably inflation, which could dampen rate hike expectations for the months to come.

If there are no major surprises from the votes or quarterly inflation report, Carney’s press conference will decide which direction the pound will take. Back in June, Mark Carney said that he was prepared to raise rates if UK business activity increased. If he sends a similar message at today’s press conference, this would be another signal for bulls to jump in.

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