BOE Hikes By Smaller Amount but Hawkish Risks Remain

Smaller Hike for NowDespite chatter around a possible .5% rate hike yesterday, in the end the BOE opted for a smaller .25% hike. The BOE cited the recent inflation drop as the key driver behind the decision to hike by the smaller amount, though did leave the door open to further tightening if needed. However, this was one of the more contested meetings we’ve seen from the BOE with two members voting in favour of a larger hike and one voting in favour of holding rates unchanged, reflecting growing dissent among policymakers.Hawkish BOE Risks RemainCurrently, the market is pricing in at least one further .25% hike by year end, most likely next month. However, this will hinge firmly on the path of inflation in coming months. Should CPI show any surprise stickiness or, indeed, any fresh upside, rates might well need to be lifted higher. While hawkishness from the BOE typically suggests bullishness for GBP, traders are concerned over UK growth prospects amidst the ongoing lift in rates, exposing GBP to downside risks as we move through H2.Technical ViewsGBPUSDThe correction lower in GBPUSD has seen the market breaking below the bullish trend line. Price is currently testing the 1.2659 level support and is stalled for now. While below the broken trend line, the market remains vulnerable to a further break lower with 1.2437 is the next support to note.