BOE Holds Steady On Rates

Following a firm rally on the back of yesterday’s BOE meeting, the Pound is pulling back from highs today. Yesterday, the BOE held rates unchanged at 5%, as expected, signalling its intention to move slowly with easing. While the bank note that rates are on a downward path and further easing will be seen, it reaffirmed its commitment to maintaining policy as needed to ensure that inflation comes down to and stays at target. Unlike the Fed, which now seems certain that the threat from high inflation has passed, the BOE is still grappling with uncertain price pressures. Bailey was eager to stress the message that the bank intends to ease further if inflation falls but stressed that it is vital to ensure inflation is heading to target and so must be very careful not to cut to fast or by too much.

Less Clear BOE Outlook

Following the meeting, GBP  we also heard comments from BOE’s Mann today who stressed the need for the BOE to move slowly with rates. Mann said she takes a more guarded view of inflation and interest rates, and urged the need to maintain restrictive monetary policy in order to safeguard against a further inflationary rise. Despite these further, more hawkish comments, GBP has softened today against a stronger US Dollar. Near-term, GBPUSD still has room to advance given the divergence between the Fed and the BOE. Any near-term US data weakness is expected to drive fresh buying in the pair, as will any UK data strength. Looking ahead next week, we have plenty of key data to monitor with the latest UK/US PMIs as well as US durable goods and core PCE data.

Technical Views

GBPUSD

The rally in GBPUSD has stalled for now into the 1.3295 level. With momentum studies bullish, however, focus is on a continuation higher while price holds above the 1.3136 level, keeping 1.3431 in sight as the next bull target.