GBP Lower As Market Weighs Dovish BOE Risks

BOE Up NextGBP remains under heavy selling pressure ahead of the BOE meeting today. Over recent weeks the Pound has fallen sharply amidst a swift repricing of UK rates. With UK inflation falling and the BOE signalling that peak rates are in sight; GBP has deteriorated significantly. While a further hike is still the market consensus forecast for today, dovish risks have grown significantly.UK Inflation FallingThe latest CPI reading for the UK this week showed that inflation fell sharply last month, marking the third consecutive monthly fall. Now back at 18-month lows, UK CPI looks finally to be heading back to target. The question for traders is whether the BOE judges it should deliver a final push on rates this month or risk holding rate steady to assess the impact of a pause. Given that inflation is still more than 300% above target, the likely outcome today is a final hike along with a signal that rates are expected to remain unchanged beyond today.GBP RisksHowever, the BOE needs to be careful that it doesn’t exacerbate the selling in GBP which itself might lead to higher inflation if a further drop is seen. With this in mind, a ‘higher for longer’ message, similar to the Fed, is likely to be the avenue the BOE walks down today.Technical ViewsGBPJPYFollowing a period of consolidation over recent months, GBPJPY is now testing below the 183.43 level and the bull channel lows. With momentum studies falling, the focus is on a test of the 179.95 level next. This is a key area for the market which bulls will need to defend to maintain the longer run bull view. Below there, focus shifts to 176.35 next.