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Bailey Talks Down Pound

GBP has come back under selling pressure into the end of the week following comments from BOE governor Bailey who yesterday suggested that UK rates might have peaked. During a PR event yesterday, Bailey cautioned that further rate hikes were not inevitable and that any further adjustments will be data-dependent. However, Bailey also warned that it was important not to repeat the mistakes of the past and cautioned that doing too little on rates now would mean needing to do more later.
 

Dovish Expectations

At the last BOE meeting, the bank was seen acknowledging that inflation had started to cool (hopefully having peaked) and signaled a desire to move away from tightening. With rates currently at 14-year highs, Bailey’s comments yesterday have been taken as a sign that the BOE might look to hold off from further tightening when it meets this month. While the base case scenario is still for a .25% hike this month, even if seen, the guidance issued might be more dovish than previously thought, leading GBP lower near-term.
 

Technical Views

GBPUSD

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The decline from recent highs around the 1.25 level has seen the market trading back down to test the contracting triangle lows. Price is currently underpinned by support at the 1.1891 level. However, with momentum studies bearish, there are risks of a break lower with 1.1493 the next downside target for bears. To the topside, a break of 1.2195 is needed to alleviate near-term bearish pressure. 

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