- GBP/USD has been relentlessly on the defensive on Thursday, falling from around 1.3550 to current levels below 1.3350.
- The pair is on track for its biggest one-day drop since September 2020 amid risk aversion amid Russia’s invasion of Ukraine.
- Economic uncertainty seems to weigh particularly heavily on sterling as the BoE’s tightening outlook is dimmed.
Key support levels fell like dominoes on Thursday as the pair GBP/USD continues to succumb to problems related to Russia’s widespread/continued attack on Ukraine. As traders abandon risk-sensitive currencies such as the British pound in favor of safe-haven currencies such as the US dollar or Japanese yen, as global equities fall, the GBP/USD pair is in on track for its biggest one-day drop since September 2020 of about 1.5%. That drop has seen the pair drop from the 1.3550 area to current levels below 1.3350 and in doing so drop below key support at 1.3500 and 1.3360 to post new yearly lows.
Such a large intraday move might have some traders wondering if the bears will soon run out of steam. Some amount of mean reversion can usually be expected for GBP/USD after such a large intraday drop. That suggests hopes of the pair testing 2021 lows below 1.3200 may have to wait. But as recent geopolitical events have cast uncertainty on the outlook for the global economy and central bank policy, the GBP/USD pair’s short-term bias may well remain negative. Any bounce towards 1.3400 can be seen as a good opportunity for sellers to reload positions.
The UK economy was already facing the prospect of a major shock to living standards in the form of higher taxes, energy prices and phone bills (the latter two from the second quarter). The latest surge in oil and gas prices (UK gas futures jumped more than 30% on Thursday) amid expectations of supply disruptions from Russia due to the West’s response to sanctions alone darkens the landscape. BoE policymakers have emphasized in recent days that the next policy tightening will be “moderate” and that recent developments will further lower expectations for tightening. That probably explains in part why on Thursday, the British pound was one of the G10 currencies hit the hardest against the US dollar.
Additional technical levels
Source: Fx Street
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