GBP/USD in free-fall in BoE rate hike aftermath, target 1.2995 level and 2016-2017 uptrend line?

• GBP/USD printing fresh lows post BoE.
• Still urther slack in the economy?
• Targetting the 1.2995 level and 2016-2017 uptrend line?

The first UK rate hike in a decade from the Boe has taken GBP/USD down to a low of 1.3060, that is around -1.37% on the day so far, having posted a daily high at 1.3301.The hike is a dovish hike and the softer stance is likely to persist and so act to cap both GBP and UK rates, explained analysts at Westpac:

"Markets had been discussing the potential of “one-and-done” hike from the BoE. Carney and the rest of the more hawkish members of the MPC had been guiding the market towards a November rate hike since August and this was almost taken as a given after the commentary and statement in September. 

Although this is effectively what has been delivered, the slow path of projected future moves saw the market push yields and GBP lower.  The “one and done” in the market should have more accurately been labelled “one and done until 2Q’18”. The more protracted path outlined by the Bank is therefore more, if only marginally, dovish than markets had priced," explained the analysts at Westpac.

Carney Speech: Rate of growth is slower but not subdued

Still slack in the UK economy?

The MPC members voted 7-2 favouring higher rates, while the vote to leave the asset purchase facility intact was unanimous. MPC members Cunliffe and Ramsden voted to leave rates on hold. "The dissenting voters felt that there was still insufficient evidence of domestic cost rises, especially in wages growth, and the potential that there was still further slack in the economy," the analysts at Westpac explained. Meanwhile, the central bank actually sees inflation peaking in October 2017 at above 3%, although sees two more rate hikes over the forecast horizon. 

UK: Cautious Bank of England casts doubt over further rate hikes - ING

GBP/USD levels

In the long run, the softer stance from the BoE is likely to persist and so act to cap both GBP and UK rates. "We will maintain a negative bias and continue to target the 1.2995 2016-2017 uptrend line. This is the break down point to the 1.2830 38.2% retracement and the 1.2575 50% retracement," argued analysts at Commerzbank.