GBPUSD breached under 1.22
The British pound has been standing still since June 17. Even recent weak data on UK retail sales and other sectors failed to impact the price. Data and outlook on Pound and UK economic condition were mixed, while US dollar also was trading with doubt. However, we know that the UK will likely face stagflation, as data shows the economy is getting smaller and prices do not tend to the lower levels.
BoE has been increasing the rates in the last five meetings, and it is expected to do the same in the next meeting to increase the rates by another 25 bps to 1.50%. On the other hand, more hawkish policies are expected from the US Federal Reserve, which will cause more diversion between the BoE and FED policies.
On Tuesday, New York Fed President Williams again supported the central bank's hawkish monetary policy of a 75 bps rate hike in the June meeting. He is also expecting the primary rates at 3.0% to 3.5% this year, or even more between 3.5% and 4.0%, and would shrink the balance sheet "exactly as planned." Williams also downplayed the recession fears. He believes the US GDP growth will probably slow from 1.0% to 1.5% with the rising unemployment rate. However, he believes the US economy is strong enough not to see the GDP in negative territory."
In addition, Fed official Daly agrees with Williams and other FOMC members. They have previously expressed support for the Fed to raise interest rates by 75 basis points next month, including Bowman, Waller, Minneapolis Fed President Neel Kashkari, and Chicago Fed President Evans.
Ahead of Thursday's UK GDP numbers, yesterday's comments caused the USD to move higher and continued the movement today as well. This is while US bond Yields, unlike increases at the beginning of the week, backed down as recession fear is increasing all across the economies. In this situation, we expect the safe havens, including Gold and the US dollar, to increase. On the other hand, we know that Sterling usually moves against the risk! Therefore, to see the Cable in more downtrend is more logical!
From the technical point of view, 1.22 is the critical and essential pivot; as long as pairing trading under this level, bears have complete control of the market. On the flip side, bulls only above 1.25 will be able to back to the charts.