This week will be a key one for GBP as we have 2 very important fundamental risk events - the Bank of England meeting minutes as well as the advanced version of 4th quarter GDP.

BOE Minutes To Be Parsed for Clues Around Further QE

The Bank of England meeting minutes will be crucial to determine the expectation for the BOE in its subsequent meeting in February and March.

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The asset purchase program which was expanded by £75 billion in October to £275 billion is expected to be completed in early February. Therefore investors are keenly watching to see if there any hints about a possible further round of QE to be announced at these next two meetings.

With the economy struggling and prospects of the euro zone sovereign debt crisis deteriorating the market had for the most part priced in further QE from the BOE coming into the beginning of the year. But, with the ECB's recent actions including the LTRO helping to stem the slide in the sovereign debt crisis into a financial banking crisis the BOE may be thinking about limiting its aggressive loosening of monetary policy via its QE program in order to assess incoming economic data.

The economic situation is not necessarily improved as the unemployment rate continues to rise and there's expectation that economy contracted in the 4th quarter - which we address below.

If the bank offers a strong endorsement of further quantitative easing that would pressure the pound against key rivals - as it dilutes the currency - and in fact we've already seen the pound weaker against the euro and higher yielders like the Australian dollar to start the week.

For a look at the EUR/GBP see today's technical update: EUR/GBP Tests Coincidence of Ascending Triangle and Declining Channel Resistance

Here's a look at the relative scale of the key central bank's balance sheets since 2008:

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4th Quarter GDP Expected to Be Grim Reading

The UK economy has been very uneven over the last year and is expected to show a contraction of 0.1% quarterly terms for the 4th quarter. This would follow a 0.6% q/q increase in the 3rd quarter, and a flat reading in the 2nd quarter.

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The expectation for the annual rate is for a tepid growth rate of 0.1%. With the economy still showing signs of strain,  a further contraction in the 1st quarter of 2012 would mean that the economy is in a technical recession.

Last week data on retail sales help to boost some analysts expectations of a fourth quarter in which the economy actually showed some semblance of growth. Year-over-year, retail sales rose 2.6% in December, on the back of a 0.6% monthly gain.

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Therefore, it will be important to see exactly where the GDP data falls.

A negative reading would weigh on the GBP and likely increase the chances of more quantitative easing while a surprise to the top-side, with GDP increasing during the quarter could knock back some of the more pessimistic outlooks for the UK.

Both the BOE Minutes and 4th quarter GDP data will be released concurrently at 9:30 GMT during Wednesday's European session and will likely determine the direction of the GBP for the next few weeks until we get the BOE rate decision in early February.

Gov't Borrowing and CBI Realized Sales Can Also Help to Guide GBP

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Also on tap this week will be data on net government borrowing which is important for measuring the austerity drive by the government.

If the government had to borrow more than expected that would undercut the effectiveness of the government's program while a reading that shows that the government borrowed less than expected could help bolster the government's program.

November's data helped as it showed the government borrowing less in 2010-2011 than it did in 2009-2010 during the month.

In regards to the expectations around retail sales, this week we get a look at the CBI realized sales - a leading indicator for consumer spending - which is expected to show a net 1% of retailers reporting sales better than they were a year ago in January. That would be a decline from the 9% net seen in December.

Therefore the jump in retail sales in December which we talked about earlier may be temporary and a result of steep discounts prior to the holiday shopping season. If the UK consumer retrenched again in the beginning of the 1st quarter then we can expect economic growth to remain weak.

Nick Nasad is the Chief Market Analyst at FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.