- Swati believes there were little indications that growing pay demands increased the possibility of a wage-price spiral.
- She warned that the BoE could worsen an anticipated recession if it raised borrowing prices even further.
- The dollar weakened amid increased risk sentiment.
Today’s GBP/USD outlook is bullish as the dollar weakens. The USD struggled to gain ground on Monday, stuck at five-month lows as traders ignored the stronger-than-expected US jobs data. Growing expectations of China reopening boosted risk sentiment.
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Swati Dhingra, who sets interest rates for the Bank of England, stated in an interview on Saturday that there were little indications that growing pay demands increased the possibility of a wage-price spiral.
Dhingra voted for a 50bps rate hike last month, while most of her colleagues supported a 75 basis-point growth. She later warned lawmakers that the upcoming recession might deepen if the central bank increased borrowing costs even further.
She added that the labor market showed few indications that workers’ demand for wage raises would result in persistently high inflation, which has now risen to a 41-year high of 11.1%.
Britain is experiencing a winter of industrial unrest as workers—from teachers and rail workers to nurses and paramedics—go on strike for better pay as they contend with a rising cost of living.
GBP/USD key events today
The UK will release its composite and services PMI data later today. These gauge purchasing managers’ level of activity. A value above 50 denotes sector expansion, whereas a reading below 50 denotes sector decline.
From the US, investors will pay attention to the non-manufacturing PMI, which is an indicator of the overall economic state of the non-manufacturing sector.
GBP/USD technical outlook: Bearish RSI divergence pointing at retracement
The chart above shows the price well above the 30-SMA and the RSI above 50. This is a sign that the current trend is bullish. The price has just broken above the 1.2300 key resistance level and will likely make a higher high. But looking at the RSI reveals a bearish divergence with the price that denotes weakness in the bullish move.
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Bears might come in at this point, as the RSI is also overbought. The price will have to break back below 1.2300, 1.2152, and the 30-SMA for the bearish divergence to play out. The bullish trend will continue if the 30-SMA holds as support and the price bounces higher.
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Saqib Iqbal
