The pound sterling continued its decline following the release of minutes of the Bank of England's meeting, which reflects the regulator's sentiment. It is evident that the overall risk situation remains complex, mirroring subdued economic activity while maintaining concerns about further inflation growth. The Bank of England believes the full impact of interest rate hikes has yet to manifest, posing ongoing challenges for households and businesses, potentially exacerbated by vulnerabilities in the market financing system. However, the regulator remains vigilant, asserting that British borrowers and the financial system overall are resilient to the impact of higher and more volatile interest rates.

The protocol indicates that the current market prices assume that interest rates in the US, UK, and eurozone are at or near their peaks. During the last meeting, many policymakers agreed that rates should remain at these levels for an extended period to continue the fight against inflation. However, the situation has changed significantly, and the notes in the protocol do not align with current market expectations. It will take time to see the full impact of interest rate hikes. Given the impact of higher and more volatile rates, as well as the uncertainty related to inflation and economic growth, assessments of some risky assets still seem inflated.

The Bank of England committee believes that higher interest rates still complicate the servicing of debts for households and businesses. Riskier corporate borrowings in financial markets, such as private lending and leverage, appear particularly vulnerable. While there are currently few signs of stress in these markets, a deterioration in macroeconomic prospects could prompt a sharp reassessment of credit risk. The protocol also highlights the high level of government debt in major economies, which could have consequences for the financial stability of the UK, especially if the market's perception of the trajectory of the government sector's debt worsens.

In conclusion, BoE officials emphasized geopolitical risks heightened after events in the Middle East, which intensified uncertainty about economic prospects, especially regarding energy prices. If these risks come true, one will see significant disruptions in the energy market, which could impact macroeconomic prospects in the UK and globally.

As for the outlook for the GBP/USD pair, a bullish trend will hardly prevail. While in November, the pound reacted positively to the Bank of England's decisions and statements, in December, it saw a sharp change in trend due to increased risks of economic growth slowing down. Trading continues around the 26th figure, and until buyers regain control over this level, an upward movement is uncertain. Consolidation at 1.2620 will restore bullish potential with a breakout to 1.2650, leaving room for a potential update to 1.2680. After that, a more pronounced surge of the pound towards 1.2725 can be expected. If the pair declines, bears will attempt to take control of 1.2540. In case of success, a breakout of the range will affect bullish positions, pushing GBP/USD towards the low of 1.2500 with the prospect of reaching 1.2450.