The GBP/USD fell Tuesday on widespread risk, breaking below 1.26 the figure at a new bear cycle low for 2022:
GBP/USD daily chart
A number of risk-off factors are being factored into the price, from lower growth forecasts for the global economy, the spread of covid from China, and contagion risks associated with the Ukraine crisis.
The US dollar (DXY) rose for the fourth day in a row on Tuesday, reaching its highest level since March 2020, and is now up nearly 7% on the year.
Meanwhile, the Chicago Board of Options Exchange Market Volatility Index, or VIX, a measure of implied volatility based on the prices of a basket of S&P 500 Index options with 30 days to expiration, rose more than 16% at 31.78.
The Dow Jones Industrial Average has tumbled 1.69% to a low of 33,392 with the S&P 500 down 1.9% to 4,200 and the Nasdaq Composite down 2.67% to 13,099.
Bond yields fell ahead of next week’s Federal Reserve policy meeting, with traders expecting the meeting to end with an interest rate hike of up to 50 basis points. The US 10-year Treasury bond yield is hitting a new low of 2,726%.
Domestically, the pound sterling has come under pressure of late due to a weak economic outlook and less aggressive expectations from the Bank of England who are concerned about the risks of a possible recession.
Data released on Friday showed a drop in retail sales and consumer confidence approaching record lows.
In addition, the risks of Brexit are once again in the foreground. Prime Minister Boris Johnson said last Friday that the nation is not ruling out taking further steps to address problems in Northern Ireland caused by post-Brexit arrangements.
A political crisis as lawmakers launched an investigation into whether Johnson had misled parliament about Downing Street parties during lockdown is also lurking in the background.
Source: Fx Street
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