Pound Pushing Higher

GBP is rallying on the back of yesterday’s BOE meeting, creating some interesting opportunities across the FX space. The reaction might appear at little counter-intuitive given the more dovish tone to the meeting.

Dovish Twist

The bank held rates unchanged, as expected, yet sounded more optimistic over the prospect of returning inflation to target sustainably. Indeed, looking ahead the bank signalled that rate cuts are now likely this year, dropping language from its statement pointing to the potential need for further tightening. While risks remain, and more information is still needed, the bank concluded that rate cuts might well be appropriate. A further dovish twist was seen in the voting split which changed to 6-2-1 (hold, hike, cut).

BOE Rate Cut Expectations

The market is currently projecting the first BOE rate cut to come in June. However, this is clearly subject to dovish risks. If inflation resumes its decline (following an uptick in December), traders will no doubt bring their rate-cut projections closer. For now, however, it seems the better growth prospects for the UK, linked to lower inflation expectations and expectations of financial easing are helping boost GBP.

Technical Views

GBPJPY

The latest attempt at a breakout above the 188.50 level was seen failing recently with price correcting lower subsequently. However, while the correction holds above the 184.35 level the focus remains on a continuation higher and an eventual breakout. Should we slip below 194.35, however, focus shifts to 178.29 next with the bull channel lows coming in ahead of that level.