GBP Sold Heavily As BOE Pauses Tightening

BOE Catches Market Off-GuardGBP continues to trade sharply lower on Friday following the latest BOE rate decision. The bank opted to keep rates on hold yesterday, pausing a 15-month tightening cycle and catching the market slightly off guard. Traders had been expecting one further hike yesterday. However, in response to the steady decline in inflation over recent months, and with dark clouds gathering on the horizon, the bank called time on any further rate hikes while it assesses the impact of its recent tightening efforts.Rate Cuts in FocusHowever, the hike was not a unanimous decision. 4 members voted in favour of a further increase, narrowly losing to the 5 members in favour a pause. Additionally, the BOE warned that further hikes could still be seen if inflation doesn’t hurry back down to target. Looking at the market reaction today, however, it seems that traders sense the BOE is likely done hiking. Indeed, BOE governor Bailey warned that it was premature to talk about rate cuts though a quick glance at market pricing this morning shows that expectations are building around an H1 BOE rate cut. While this narrative remains, GBP is likely to continue lower near-term.Technical ViewsGBPCADThe pair has been one of the stronger downside vehicles given the support CAD is getting from rising oil prices. Now down around 5% from YTD highs, the market is testing below the 1.6538 level. With momentum studies firmly bearish, while below here the focus is on a further push lower with 1.6109 the longer-run downside target.