The growth of wages as measured by average earnings also fell short of expectations, supporting the less hawkish stance. The pound first fell against the dollar after a relaxation in the labor market was interpreted as the beginnings of an economic change. Before the critical FOMC rate decision on June 15, the United States PPI will round off the series of developments for June 14.
Though there has been much speculation about a probable Fed hike of 75 basis points, a 50 basis point hike could curb dollar strength, whereas the Bank of England (BoE) may be tilted towards a 25 basis point hike rather than a 50 basis point hike ahead of the unemployment data of June 14. Three officials voted for a 50 basis point rise in the last BoE statement, and this could happen again this time. Nevertheless, a majority vote for 0.5 percentage points is implausible and quite shocking.
Bears are testing the important area of confluence around the 76.4% Fibonacci at 1.2080 for the second time in 2022, according to daily GBP/USD price activity. If a proven candle closes underneath this level, a decline toward the March 2020 swing bottom of 1.1410 should be possible. Although the current economic context strongly suggests that this bearish trend will continue, technical indicators show some bullish dispersion among the cable price action and RSI.
Although prices are recording new lows, the RSI implies that negative momentum is moderating. Bullish divergence has always indicated impending gain, but timing can be uncertain. Investors ought to be careful about trading against this significant downward trend, but also keep in mind the central bank divergence between the two countries, which is partial to the dollar.