UK100 Closes in on its Record Highs after the Bank of England Outcome

UK100 Analysis

Inflation in the UK cooled down substantially after recent months of stickiness, according to last week's update, easing to 3.4% y/y in February and the slowest pace in more than two years. Just two day later, the Bank of England appeared to getting more comfortable with prospects of lower rates. It kept rates steady, but no member voted for a hike (from two in the last decision) and one member again favored a cut. ^[1]

Furthermore, Governor Bailey embraced market pricing for 2-3 cuts this year speaking on Bloomberg after the decision. Although he did not endorse it, he said it is "reasonable" for markets to take that view. ^[2]

UK100 reacted positively to the news, posting its best day of the year, bringing the record highs back in its crosshairs (8,052).

However, inflation is still far from the 2% target and the central bank does not expect to reach the 2% target until 2026, despite projection for it falling "temporarily" to this level in second quarter of the current year. Governor Bailey acknowledged the encouraging signals, but noted that "we're not yet at the point where we can cut interest rates". ^[3]

UK100 faces headwinds after last week's rally, which exposes it to the 38.2% Fibonacci of the last leg up. Sustained weakness past that level has a higher degree of difficulty though, as the downside appears well protected with the EMA200 and the daily Ichimoku Cloud.