- GBP/USD meets fresh supply on Wednesday and falls to its lowest level since March 2020.
- Policy makers at the Bank of England failed to lift bets on a September rate hike of 75 basis points and weighed on the GBP.
- The incessant buying of dollars contributes to the fall and supports the prospects of additional losses.
The pair GBP/USD comes under renewed selling pressure on Wednesday and plunges to the lowest level since March 2020 midway through the European session. The pair is currently trading around the 1.1425-1.1420 area and looks vulnerable to prolonging an almost month long downtrend.
Policy makers at the Bank of England, including Governor Andrew Bailey, testified before Parliament’s Treasury Committee on Wednesday and did not reinforce bets on a more aggressive rate hike. This, in turn, is seen as a key factor weighing on the British pound and putting downward pressure on the GBP/USD pair amid incessant buying of US dollars.
Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee, noted that most of the impact of the significant monetary policy tightening that has already taken place has yet to be seen. Tenreyro added that a more gradual pace of tightening reduces the risk of overshooting. In addition, Governor Bailey said that stronger moves in bank interest rates open the door for policy containment or reversal later.
Against a backdrop of dovish prospects for the UK economy, dovish comments could continue to undermine sterling. The dollar, meanwhile, hit a new two-decade high and continues to be supported by growing expectations that the Federal Reserve will continue to tighten monetary policy at a faster pace to curb persistent inflationary pressures.
In fact, markets are pricing in a higher probability of a 75 basis point rate hike at the next FOMC meeting on September 20-21. This, coupled with the prevailing risk-off environment and concerns about a deeper global economic slowdown, should act as a tailwind for the safe-haven USD and support prospects of further depreciation movement for the GBP/ USD.
Follow-up selling below the March 2020 low around the 1.1410 region will reaffirm the negative bias and pave the way for deeper losses. In the absence of any major economic releases in the US, speeches from Federal Reserve officials will play a key role in the dollar’s price dynamics. Apart from this, the broader risk sentiment could also boost USD demand and provide some significant lift to the GBP/USD pair.
Technical levels
Source: Fx Street
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