March 17 (Reuters) - GBP/USD gained modestly on Friday, capping a relatively strong week with a rise back above its 55-week moving average at 1.2135, but cable faces plenty of downside risks as concerns surrounding the banking sector keep sentiment fragile and a BoE rate decision looms on the horizon.
The base case appears to be a final BoE rate hike of 25bp next week, the risk of a pause is not negligible given the current market fragility.
Adding to this, a sharp fall in inflation expectations within the latest BoE public inflation expectation survey supports the case for a pause.
As it stands, money market pricing suggests a coin toss between a pause and a 25bps hike, however, with the U.K still facing double digit inflation, this should see the majority back a rate rise.
That said, a dovish 25bps hike with confirmation that they will pause thereafter seems the most likely outcome, which suggests sterling may come under pressure as has typically been case throughout this tightening cycle.
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