GBP/USD is up 0.6% to 1.2290 on the day, moving up from around 1.2230 earlier before the UK inflation numbers hit. The surprise surge in both headline and core inflation - mainly due to food prices - saw the pound shoot higher with markets now convinced of a 25 bps rate hike this week and even pricing in one more rate hike after.
That said, the BOE policy decision is likely to be anything but straightforward. Before today, markets are expecting the BOE to hike by 25 bps tomorrow and then head to the sidelines. I would argue that the central bank's guidance will be something along those lines, affording them the flexibility to press the pause button after this week.
As for the reasoning, I reckon Bailey & co. will say that the inflation jump in February likely owes much to food and harvest shortages due to suboptimal weather - which is something that they would argue should normalise in the months ahead.
They might be wrong but it's hard to imagine the BOE turning to be more aggressive again after months of slowly heading in the other direction.
To put things more simply, if markets are expecting the inflation data today to shift the dial in the BOE, then they (and the pound) might end up being disappointed.
Looking over at the cable chart, key daily resistance continues to lie at the December high of 1.2446 and it would require a break above that to really convince of a more material upside move.
