GBP/USD slides back under 1.3600 amid dovish BoE vibes, but supported by USD weakness for now

• GBP/USD has pulled back under 1.3600 again from earlier highs in the 1.3620s amid dovish BoE vibes.
• The pair continues to trade a little higher on the day with the dollar weaker amid a broadly risk-on market mood.

Dovish-leaning commentary from BoE officials speaking before the UK Parliament’s Treasury Select Committee on Wednesday seems to have weighed on GBP/USD a touch on Wednesday, as focus remains primarily on the Russia/Ukraine crisis. The pair has pulled back to around the 1.3600 level from earlier session highs in the 1.3620 area and continue to trade about 0.1% higher on the day, boosted by a slightly weaker US dollar amid better risk appetite.

Market commentators said that the sanctions announced by the US against Russia on Tuesday weren’t as harsh as feared, facilitating the broad rebound in risk assets and selling pressure on safe havens. Market commentators did also note that US officials also committed to implementing further sanctions on Russia if needed.

Regarding commentary from BoE policymakers on Wednesday, analysts said the general tone was aimed at cooling BoE tightening bets. Firstly, Governor Andrew Bailey said he saw inflation risks as tilted to the upside though still two-sided and cautioned investors against getting overly aggressive betting on future interest rate hikes. Meanwhile, one BoE members who voted for a larger 50bps rate hike at this month’s policy meeting said the decision had been finely balanced, while another (who also voted for 50bps) said he now sees “modest” tightening over the coming months.

Analysts at Monex Europe said that “BoE communications since February's meeting have largely taken aim at cooling market-implied policy rates”. Another analyst at CIBC said that the market-implied pace of tightening this year (144bps) was too aggressive. Perhaps, then, given the dovish BoE vibes on Wednesday, it isn’t too surprising to see GBP underperform in the G10 space (only safe-haven currencies USD and JPY are doing worse). For now, as markets await more certainty on the geopolitical front, GBP/USD may continue to undulate within recent 1.3550-1.3650ish ranges.