It’s all about the little things in the BOE policy decision here today. Let’s summarise what they are.
- They added one new line to the forward guidance, noting that they will be watching carefully the developments on how inflation persistence will be receding. The key word there being receding of course.
- We saw Ramsden join Dhingra in voting for a rate cut at this latest meeting. So, one isn’t the loneliest number anymore when it comes to the bank rate vote at least.
- The BOE itself has lowered its inflation forecasts compared to February, signaling that they are growing more confident on the outlook – at least for now. But then again, these are just forecasts.
- There’s a side remark from BOE governor Bailey stating that recent news on inflation has been “encouraging” and that he is “optimistic that things are moving in the right direction”.
These aren’t anything major on their own but they do add up. And that perhaps explains the pound’s initial reaction, which is a drop across the board. GBP/USD fell from 1.2490 to 1.2450 but is running into a minor support:
GBP/USD hourly chart
As much as the little things do add up, they are still just little things at the end of the day. I don’t see this as producing much of a meaningful shift to the BOE outlook. And the rates market is also helping to convince of that with August still the favourite for the BOE to start cutting rates.
The total rate cuts priced in for the year is little changed at ~55 bps currently, just mildly higher from ~53 bps before the decision.
That being said, the near-term chart for GBP/USD above is still one that sees sellers in control. But for a real push towards 1.2300 again, I reckon it needs help from the dollar side of the equation. As much as the near-term bearish bias is sustained, it’s hard to imagine a much steeper drop in sterling just off this alone.
In looking at the dollar though, we might have to wait until the slew of US data next week before anything major though.