"If you look at expectations, there is still a minority expecting a rate cut from the Bank of England," said Paul Mackel, currency strategist at HSBC Securities Inc-London. Consequently, "you might see a bounce in sterling versus the euro, however the reaction would probably be more temporary in nature."

Given the fact that the bank does not publish a statement after holding rates, it is unlikely that any knee-jerk reactions in the euro/sterling or sterling/USD crosses would be long-lived. However, the European Central Bank's press conference following its rate decision will probably have some impact on the euro, Mackel added.

Chris Turner, head of foreign exchange at ING Wholesale Banking, 'does not think the Bank of england's rate decision will provide many trading opportunities. Since some traders are looking for a rate cut, one could expect a small, short-lived rally in the pound following the statement, but such move would be temporary. On the other hand, if the BOE cuts rates, the pound would sell off considerably against major currencies.

Ashraf Laidi, chief FX Strategist at CMC Markets, said the pound will sell off regardless of the BOE's decision. "Despite the worsening data picture, we expect the Bank of England to make a closely contested vote to keep rates unchanged at 5.00% tomorrow as it aims to keep alive its combat against inflation. But as we have seen in previous decisions of no change in interest rates, (the) sterling is expected to lose further ground."

"We reiterate our month-end forecast of $1.9450, followed by $1.90 for Q3," he added.

In fixed income, Eric Lascelles from TD Securities said that one could expect a small sell-off in short sterling contracts if the Bank of England holds rates as is widely expected, given the small probability of a rate cut priced in by market participants.

Such a development would probably result in a one basis point move, he added. If the BOE were to unexpectedly cut rates, one would expect bonds to move higher across the curve, as it would signal the need for further, more aggressive easing. However, that scenario is highly unlikely.

Christian Melzer, analyst at Dekabank Deutsche Girozen, said he shares the expectation that the Bank of England will hold rates unchanged on Thursday, although he does not think fixed income will react much to a rate hold.

"It is unusual to see back-to-back rate cuts from the BOE and the last minutes unexpectedly showed two members wanting to hold on monetary policy until the release of the inflation report," he said. "Since the BOE is so widely expected to hold rates unchanged, the fact that no statement is published following the announcement will give little for fixed income traders to work with. "Obviously if the Bank cuts rates unexpectedly, there would be a huge reaction in short end bonds."

Steven Bell, chief economist from GLC Ltd., said, "If the BoE were to cut rates, GBP would fall, short sterling would rally and equities would edge up a little. That much is obvious. Would Gilts rally? I suspect not."

By Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it