GBP: a volatile week for the pound ahead of this week's major BOE decision

The Bank of England is expected to make its monetary policy decision on Thursday. The UK economy is still suffering from the virus situation and remains in containment mode. Will the Bank of England keep the stimulus intact now that inflation has reached its target?

The pound is one of the most volatile currencies of the forex. Pound pairs have a larger Average True Range (ATR) compared to other currency pairs, offering interesting opportunities for swing traders and scalpers.

Volatility this week is expected to increase. The Bank of England's monetary policy decision is due soon, and it is a difficult one to make.

On the one hand, UK inflation has reached the Bank of England's target, which justifies the removal of monetary stimulus. A signal that the bank will remove the accommodative measures cannot be ruled out.

On the other hand, virus infections have started to rise again in the UK. The delta variant (i.e. the Indian variant) is more infectious than any other and is the dominant one in the country. The government has already delayed the end of containment measures several times, which shows the growing concern about the variants.

All eyes are on the votes on the CPM asset purchase facility

With COVID-19 on the rise, the Bank of England may delay its withdrawal of stimulus measures as the economy cannot fully re-open. Although the bank has historically followed in the footsteps of the Fed, this time may be different because of the virus.

The signal from the Monetary Policy Committee (MPC) is the one that matters this week. No one expects the MPC to raise the interest rate simply because inflation has reached the target.

Instead, any sign of optimism will be important for the pound. That sign could come from the vote on the asset purchase facility. This vote is in X-X-X format - the first number indicates votes to increase, the second to decrease and the third to maintain asset purchases.

In other words, a higher second number is a bullish sign for the pound as it represents a hawkish signal from the Bank of England. At the previous meeting, held on 6 May, the MPC voted 0-1-8; therefore, one person dissociated from the consensus.