- A combination of factors causes an aggressive sell around GBP/USD on the last day of the week.
- Dismal UK macro data weighs on sterling and puts pressure amid revival in dollar demand.
- Aggressive bets on Fed rate hikes continue to boost US bond yields and support the dollar.
- Diminishing odds of a 100 basis point BOE rate hike in November supports prospects for further losses.
The GBP/USD pair continues to lose ground during the first hour of the American session and plunges to a new weekly low, around the 1.1060-1.1065 area in the last hour.
Sentiment surrounding the British pound remains bearish amid growing concerns about a deeper economic downturn and cost of living crisis. Fears were fueled by Friday’s disappointing release of UK Retail Sales figures, which suggest consumers are feeling the pinch of high inflation.
Apart from this, the incessant buying of US dollars puts additional downward pressure on the GBP/USD pair and contributes to the ongoing depreciation movement. In fact, the dollar index, which measures the evolution of the dollar against a basket of currencies, is once again recovering close to the monthly maximum and is supported by a combination of factors.
The continued rise in US Treasury Yields, bolstered by Fed expectations, turns out to be a key factor driving the dollar higher. Overnight remarks from Philadelphia Fed President Patrick Harker reaffirmed bets on a further rate hike in November. This, in turn, lifts the yield on the benchmark 10-year US government bond to its highest level since the 2008 financial crisis.
This, coupled with a weaker risk tone, underpins the dollar as a haven. This, in turn, suggests that the path of least resistance for GBP/USD is to the downside amid diminishing odds of a 100 basis point rate hike by the Bank of England in November. Therefore, a further decline towards the key psychological level 1.1000 remains a distinct possibility.
Technical levels to watch
Source: Fx Street
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