GBPUSD H1 17-03

For now, the drop in cable is somewhat salvaged by the 200-hour moving average (blue line) @ 1.3099.

But the immediate reaction says a lot about how the market is feeling about the BOE's tightening cycle at the moment.

Coming into the meeting decision, there were 5 rate hikes priced in (excluding today) for the year. Now, we're down to 4 rate hikes priced in left already.

There are two big things to note from today's meeting in my view. One is that we are already getting policymakers starting to dissent against rate hikes this early on in the cycle. Yes, it is only Cunliffe alone but if other policymakers start to share a similar view, it will cause a split in the bank rate vote moving forward and that will make it tough for markets to get a clear idea of what the BOE will do.

The second thing to note is the subtle change of wording highlighted here. I understand central banks want flexibility but considering how assertive the BOE has been to be one of the first central banks to fight inflation, this is a bit underwhelming. Yes, they may still be as aggressive as they plan or need to be. But the change in wording does hint at some hesitancy or at least it isn't going to prove to be too much comfort for those betting on more rate hikes to follow.

I don't think there will be too much backlash against the pound when the dust settles but given what we know today, it is going to be interesting to pay more attention to communication from BOE policymakers again moving forward.

Going back to the chart in cable, the 100 and 200-hour moving averages will provide the first key line of support @ 1.3068-99 currently. That will be followed by the 1.3000 level, although a push towards the latter might be a bit over the top; all else being equal.