Pound falls as BOE resigns to slower pace of tightening policy

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Pound falls as BOE resigns to slower pace of tightening policy

<p style="" class="text-align-justify">Cable is down roughly 1% on the day now, with the immediate low from the BOE decision coming in at 1.2284. Price is now trading back towards 1.2300 but it is a tough job for the pound to pick itself up to run against the dollar considering the highlights of the decision.</p><p style="" class="text-align-justify">Let's look at the takeaways from the BOE statement today.</p><ol><li style="" class="text-align-justify">There is a split in votes (7-2), with Tenreyro and Dhingra wanting to keep rates unchanged</li><li style="" class="text-align-justify">The latest BOE projections indicate that inflation has likely peaked</li><li style="" class="text-align-justify">Forward guidance suggests that more rate hikes are likely to follow</li><li style="" class="text-align-justify">The statement omitted the phrase that "policy is not on a pre-set path"</li><li style="" class="text-align-justify">Also omitted the passage on basing any changes to the "scale, pace and timing" of the bank rate to the outlook</li></ol><p style="" class="text-align-justify">It's a bit tricky to read into the last two points but the way I see it is that when the BOE talked about a "pre-set path", it was alluding to the more aggressive approach to raising rates. Now that it is slowing down and potentially returning to 25 bps moves next year, such a caveat is not really likely to feature anymore.</p><p style="" class="text-align-justify">The removal of its consideration for the "scale, pace and timing" to changes in the bank rate fits with that, as we are approaching the top in which the BOE sees this tightening cycle going. I mean, with the cost-of-living crisis worsening and a split in votes already taking place, it will be hard to convince of much higher rates for the central bank moving forward.</p><p style="" class="text-align-justify">GBP/USD was already down to 1.2330 going into decision, before sliding to 1.2284 but managed a bounce off the broken resistance level (now turned support) from the August highs at 1.2276-93. Adding to that is the 50.0 Fib retracement level from the downswing since last year, seen roughly at 1.2310.</p><p style="" class="text-align-justify">For buyers, they need to stay above that to maintain any potential upside momentum in chasing a move towards 1.2500. The 100-hour moving average at 1.2319 is also in play and could help to provide some near-term support for buyers as well.</p><p style="" class="text-align-justify">But break below those levels above, and it will be tough to see cable manage a sustained upside push amid the divergence between the Fed and BOE messaging, all else being equal that is.</p>

                This article was written by Justin Low at www.forexlive.com.

Source: Pound falls as BOE resigns to slower pace of tightening policy

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