- GBP/USD found fresh supply on Wednesday and fell to its lowest level since March 2020.
- UK political drama, Brexit woes, expectations of a less hawkish BoE weighed on sterling.
- Strong tracking of dollar purchases further contributed to the sell bias ahead of the FOMC minutes.
The pair GBP/USD it struggled to capitalize on modest early gains and attracted fresh selling near the key psychological 1.2000 level on Wednesday. The intraday decline dragged spot prices below 1.1900, to the lowest level since March 2020, and was fueled by a combination of factors.
Sterling was hurt by the political crisis in the UK, where British Prime Minister Boris Johnson is facing mounting pressure to step down following the resignations of top Tory MPs. This comes amid concerns that the British government’s controversial Northern Ireland protocol bill could trigger a trade war with the European Union. Furthermore, the expectation that the Bank of England would take a gradual approach in raising interest rates, amid growing recession fears, further weighed on sterling.
On the other hand, the US dollar took advantage of the previous day’s hit and reached a new two-decade high, amid growing acceptance that the Federal Reserve will raise interest rates at a faster pace. Indeed, Fed Chairman Jerome Powell reiterated last week that the US central bank remains focused on reining in inflation and that the US economy is well positioned to handle tighter policy. This was another factor that put downward pressure on the GBP/USD pair, although the decline was not strongly followed.
Traders appear to have stayed on the sidelines preferring to wait for the FOMC Meeting Minutes due later in the US session. Market participants will be looking for new clues on the path of the Fed’s tightening policy, which will influence dollar price dynamics and provide some momentum to GBP/USD. Meanwhile, traders will look to the US economic docket, with JOLTS job openings and the ISM services PMI.
Technical levels
Source: Fx Street
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