UK Rates Hit 15yr Highs 

The British Pound came under heavy selling pressure yesterday as traders reacted to the latest rate adjustment from the BOE. The UK central bank hikes rates for a 12th consecutive meeting to highs of 4.5% from 4.25% prior. Additionally, the BOE signalled that with inflation still high and expected to soften at a weaker pace than previously thought, further tightening might well be needed. Traders had been expecting the hike and so the pull-back in GBP can be viewed as profit taking on the rally we saw ahead of the meeting.

Growth Forecasts Revised Higher 

Looking ahead, the BOE was more constructive on UK growth. GDP forecast for the year were revised higher to 0.25% from the -0.5% projected last time around. While still anaemic, growth is at least forecast to be positive for the year. However, the bank was heard to be more cautious over the path of inflation and the risks of inflation becoming entrenched at higher levels. While suggesting a strong case for turning more hawkish on the BOE, the bank itself cited that it felt it was almost at the turning point on rates where it could pause and noted that it was nearing the end of its tightening cycle.

Split Expectations 

With this in mind, traders are split over expectations for one or two more hikes from the bank before it pauses. As such incoming UK inflation data will now take on even greater importance as traders look to gauge the likely end of BOE tightening or, indeed, an extension of it should CPI refuse to bow.

Technical Views

GBPUSD

The sell off yesterday saw price reversing back under the bull channel top though still holding above the 1.2437 level for now. While this level holds as support, the focus remains on a further push higher and an eventual breakout above 1.2659 targeting 1.2992 above.