- GBP/USD falls to a new multi-week low on Friday amid prevailing bullish sentiment around the USD.
- The Fed’s dovish outlook and high US bond yields continue to lend some support to the dollar.
- The fundamental backdrop favors the bears and a drop to challenge the yearly low.
The pair of GBP/USD moves sharply lower at the start of the European session on Friday and falls to a new multi-week low, below 1.3050 in the last hour. At time of writing, the pair remains at daily lows near 1.3030, losing -0.35% on the day.
After directionless price movements over the last two days, the GBP/USD pair witnessed some selling on Friday and looked pressured by a stronger US dollar. Expectations that the Fed would tighten monetary policy at a faster pace propelled the DXY dollar index to its highest level since May 2020, which proved to be a key factor weighing on the pair.
It is worth remembering that the March FOMC minutes released on Wednesday showed that the authorities were willing to raise interest rates by 50 basis points at upcoming meetings. Furthermore, there was general agreement on massive Fed balance sheet reduction to tighten financial conditions. This, along with high yields on US Treasuries, continued to benefit the dollar.
The aggressive outlook of the Fed, coupled with concerns that the recent rise in commodity prices would further push up consumer inflationhelped US bond yields stay near multi-year highs. In contrast, the Bank of England would have softened its language on the need for future interest rate hikes.. This further encouraged the bears and put pressure on the GBP/USD pair.
The combination of factors supports the prospects for a drop to challenge the yearly lows, around the psychological level of 1.3000. That said, the lack of a strong continuation sell-off warrants some caution for aggressive bears amid the lack of any relevant economic data releases on Friday. However, the GBP/USD pair remains on track to finish lower for the second week in a row.
GBP/USD technical levels
Source: Fx Street
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