GBP Collapses Despite Hawkish BOE Message

GBP Under PressureGBPUSD is now very close to testing the yearly lows following the sell off this week. The rise in USD has accompanied investor uncertainty over the current energy crisis and supply chain issues hitting the UK. Indeed, the sell of this week comes despite a hawkish shift at last week’s Bank of England meeting and hot on the heels of further hawkish comments from BOE governor Bailey this week.Hawkish Shift At BOE MeetingAt the September BOE meeting, the bank noted that the case for hiking rates has strengthened on the back of the recent surge in inflation (3.2% in August). While the majority of members viewed the spike as temporary, with inflation set to peak around 4% this year, the bank noted clear upside risks given the current backdrop. Indeed, two members voted for immediate tapering of the bank’s asset purchase program. While the BOE noted that uncertainties remain in the outlook, the uptick in inflation presents a clear issue which needs to be addressed.Rate Hike Pricing RisesOn the back of the BOE meeting, the UK rates market saw a sizeable shift, pricing a rate hike by February as a 90% probability, up from around 60% ahead of the meeting. Following that meeting, we then heard from BOE governor Bailey on Monday. Bailey told the audience at an event in London that "All of us believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target sustainably over the medium term." The reference here to a unanimous view on tightening is a clear hawkish signal.Uncertainty RemainsDespite the clear hawkish signal from the BOE, however, GBP remains under pressure heading into the middle of the week. The ongoing supply chain issues and energy crisis currently hitting the country are heavily detracting from the BOE’s message creating wide-spread uncertainty as to the near-term outlook for the UK heading into the winter months. However, the current crisis, if anything, appears likely to drive inflation even higher, sharpening the focus on BOE tightening by year end.Technical ViewsGBPUSDThe breakdown below the contracting triangle pattern and the 1.3570 level support is a strong, bearish technical development for the pair. With both RSI and MACD giving bearish signals here, there is room for the move to extend. Price is fast approaching the 1.3461 level support, a break of which will open the way for a test of 1.32 next.

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