GBP/USD falls below 1.1850, to lows since mid-July

• GBP/USD falls for the third day and hits the lowest in a month and a half.
• Fed expectations and recession fears underpin the dollar and put downward pressure.
• DXY is trading at 1-month highs after breaking above 108.00.

GBP/USD extends bear run and trades at July 15 lows below 1.1850 on Friday. The context of risk aversion and a stronger dollar put strong downward pressure on the pair.

It is the sixth drop in the last seven days for GBP/USD. The low of the day was marked at 1.1830, which is more than 300 pips below last week’s close.

The dollar rises on all fronts. In fact, the dollar index (DXY) has spiked to its highest level since July 18 and remains well supported by Fed expectations. Recent comments from several Fed officials suggest that the US central bank will maintain its tightening policy to control inflation. The prospect of further hikes boosted bond yields.

The other positive factor for the dollar is the prevailing risk aversion, which at the same time puts downward pressure on the pound, which is among the worst performers. This despite the fact that it was known that retail sales of the United Kingdom were better than expected in July, posting the first increase in three months by rising 0.3%. The gloomy outlook from the Bank of England, which warns that a prolonged recession will start in the fourth quarter, continue to weigh on the currency.

From a technical point of view, acceptance below 1.1900 could be seen as a new trigger for bears and supports the prospects for a further short-term depreciation move for GBP/USD. Hence a further drop towards the next relevant support, around the 1.1820 region. Below follows 1.1800 and then the July low at 1.1760 area.

Technical levels