By Sam Coventry

The British pound remains above the 1.2 threshold against the euro on Tuesday morning. The next big driver of the exchange rate is likely to be the first Bank of England MPC policy decision of 2014.

At 10:30 in London we see the British pound to euro exchange rate (GBP/EUR) trading 0.11 pct lower on a day to day basis.

The exchange rate is quoted at 1.2026.

PLEASE NOTE: The above quote is taken from the inter-bank market. Your bank will affix a discretionary spread when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more currency. Please learn more here.

Eurozone inflation data, German employment figures keep EUR firm

The euro has shrugged off what would have traditionally expected to have been negative news which came in the form of December inflation data.

The Eurozone Consumer Price Index (YoY) came in at 0.8%, analysts had expected 0.9%. This means inflation continues to race further below the European Central Bank's targeted inflationary level that lies just below 2%.

The ECB now has further space to stimulate the EZ economy (a EUR-negative scenario); remember that in November the EUR fell after the ECB cut its benchmark interest rate to a record low of 0.25%, reflecting the low inflation outlook.

The ECB will gather for its latest meeting later this week, although no changes to policy are expected.

The stubborn Euro also batted off news that German unemployment grew by 15K in December, analysts had expected the figure to remain flat.

We would not expect the pound euro exchange rate to advance with the EUR showing its current stubbornness.

Bank of England policy decision due on Thursday

The Bank of England is widely tipped to keep policy unchanged at the first MPC meeting of 2014 - a GBP-neutral stance. However, we could see some changes made to the Bank's forward guidance policy which could certainly provide us with some action.

Bank of America Merrill Lynch analyst Nick Bate says with UK unemployment falling rapidly to the 7% benchmark the Bank will have to reassess policy:

"The BoE has commented that as the unemployment rate approaches that threshold, it will likely set out some further views on the prospects for monetary policy beyond that point.

"Thus, while the exceptionally strong pace of job growth of late - surpassed only once in the last 40 years - seems likely to slow somewhat, the possibility that the unemployment rate could soon fall to close to 7% suggests the BoE may start considering the issue imminently. Its February Inflation Report might be the most opportune time to set out some more-detailed views on the issue, but it could potentially start to lay some groundwork with a statement alongside its monetary policy decision this week, in our view."

We would expect little major shudders in the GBP/EUR until at least Thursday. Until then the mid 1.20's should be a reliable touchstone.