As the Bank of England (BOE) prepares to raise interest rates for the first time in a decade, sterling could jump if Governor Mark Carney signals that several rate hikes lie ahead.
Market expectations indicate a 90 percent chance that the BOE will announce a rate hike Thursday, after the central bank suggested in September that strong inflationary pressures and better-than-expected growth since last year's Brexit vote could lead to a slowdown in monetary stimulus.
"We shouldn't expect a major re-pricing if the BOE simply does what the market is expecting," Kallum Pickering, senior U.K. economist at Berenberg, told CNBC. This means that the FTSE100 and sterling should not change dramatically if Carney announces a 25 basis point hike.
"However, I think the BOE could signal that the market pricing is still below what the BOE expects in terms of the path for future rate hikes. If the BOE sends a strong signal that the market is under-pricing the number of rate hikes, then sterling could appreciate," Pickering said.