Trend line support comes in near 1.2700, providing a nice entry level in the near term – TDS

GBP/USD slid a bit on the BoE policy announcement, likely reflecting the shift in the voting bias. Economists at TD Securities analyze the Pound Sterling (GBP) outlook.

Cable set to move to 1.3000 in Q2

As universally expected, the MPC opted for a hold today, leaving Bank Rate at 5.25%. The vote was 8-1, with both Mann and Haskel switching to a hold vote. The language in the statement was broadly the same as in February, though we noted a slightly more dovish lean on inflation developments and a possible opening up for a May cut.

We think markets were generally looking for something like a copy and paste job from the last meeting. In turn, the voting shift from 2/6/1 to 8/1 has likely disrupted some short-term positioning. That said, we would fade the knee-jerk reaction, as the second order effects of central banks cuts are likely more important than the cuts themselves for FX. Easing financial conditions and improving growth prospects should continue to weigh on the USD in Q2/Q3.

For GBP/USD, we could see trend line support come in around 1.2700 in the near term. We would use dips as buying opportunities as we forecast a move to 1.3000 in Q2.