The window is certainly closing for the BOE to hike rates, as the UK economy pretty much grinded to a halt in May according to the PMI data here. Surging inflation pressures are weighing significantly on demand conditions and that is not helping to ease fears of a looming recession in the UK, one that the BOE warned might only hit in 2023.
The pound has dropped from 1.2570 to 1.2485 now against the dollar as markets are scrambling to reprice all of that. UK consumer inflation hit 9% in April and policymakers are warning of double-digit inflation set to follow in the months ahead, yet we're already seeing the toll it is having on the economy.
Money markets had earlier priced in five more rate hikes by the BOE for this year. That is now down to four rate hikes after the PMI data release above.
The 100-hour moving average at 1.2477 will be a key near-term support level to watch for now in cable. A drop below that could open up the path towards 1.2400 as markets try to digest what the BOE may do next in terms of policy steps later this year.
This does serve as a good warning indicator to the ECB though because Europe looks to be going down the same path as well. And when markets see a cause for any repricing, they can be rather violent. For now, that's not going to help with pound sentiment.