'Super Thursday' to drive the path of sterling in the week ahead

In what many analysts have referred to as 'Super Thursday,' the BoE will overhaul its communications and release simultaneously the MPC decision, the minutes of that same meeting, and its August Inflation Report. Markets will have to process a substantial amount of information on the day, and GBP vols expected to edge higher, as the overhaul of the MPC's communications is expected to coincide with one or more BoE members voting in favor of a hike - the baseline is for an 8-1 split vote, with Martin Weale the most likely candidate, although the risks could be skewed toward a further vote split (7-2). A split vote at this stage would lead the way for more intense discussions toward year-end, when price pressures are less soft. 

As the minutes of the July MPC referred to a "number of members" for whom the decision was finely balanced, David Miles - even though this will be his last meeting - or Kristin Forbes could also be tempted to vote for a hike. Because these two members have not yet voted for a hike in this cycle, the signaling effect of their vote might be greater than for Weale or McCafferty.

"Yet given the current state of the economy, we continue to think that an additional six months of data will be necessary to convince the majority of the committee to hike rates and continue to expect the first rate hike in Q1 2016. On the QIR, we see scope for the BoE to revise its 2015 productivity and wage forecasts higher, whereas it will almost surely have to revise its 2015 inflation forecast lower, given very soft price pressures," notes Barclays.

However, the inflation path is likely to be steeper, with 2016 inflation revised higher. Overall, despite a plethora of information received simultaneously, GBP could benefit the most against European currencies, particularly the EUR, and see Friday's uptick in EURGBP as favourable entry point to re-engage in short positions.