The Pound has rallied ahead of today’s Bank of England rate decision, yet there may be a risk of a "buy the rumour, sell the fact" response to Thursday’s outcome.

"GBP may not get much lift from this meeting," stated James Rossiter, Head of Global Macro Strategy at TD Securities. 

The Bank of England’s Monetary Policy Committee (MPC) is forecast to hike rates, yet uncertainty remains as to whether the increase will be by 25 basis points or a larger 50 basis point rise.  

Money markets have priced in a 50bp hike, as such an initial sell-off would be a consequence of a 25bp rise. 

Moreover, there may be further declines if the Monetary Policy Committee’s vote for a 50bp move is a close one, Pound Sterling Live reports. 

"The tone is cautious, and the immediate focus is on rising inflation expectations and worries about a wage-price spiral," Rossiter added. 

"The MPC implies that this could be a one-off 50bps hike, with 25bps the norm going forward," he said, as he forecasts the Pound to Dollar rate to edge back to 1.21 should this be the outcome. 

Sterling’s appreciation over the past few weeks has been in line with the markets pricing in a 50bp increase, as well as a commitment to act "forcefully" if and when required. 

This week the Pound to Euro exchange rate has risen 0.5% at 1.1950, adding on to last week's 1.34% gain. 

The Pound to Dollar exchange rate has risen by 0.20% at 1.22, following on from last week's 1.44% gain.

In contrast, the MPC may opt for a dovish outcome with a 25bp hike and indicating more increases are on the cards. 

"Nothing changes much from the previous meetings, and the higher near-term inflation forecast is downplayed in part because of its impact on real incomes further out," said Rossiter. 

In this scenario, GBP/USD would fall to 1.20, around a 200 pip move that would suggest GBP/EUR edges down to 1.1750, as long as there’s no change to EUR/USD.