- GBP/USD witnesses strong selling for the fourth day in a row and falls to a new multi-week low.
- Political jitters in the UK, Brexit woes and disappointing macro data from the country are weighing on the British pound.
- Expectations of an aggressive Fed rate hike and risk-off sentiment benefited the dollar and added to the pair’s selling bias.
The pair GBP/USD extends last week’s rejection drop from the 1.2600 area and sees strong selling for the fourth day in a row on Monday. The bearish trajectory extends throughout the first half of the European session and drags the pair near 1.2200 to a fresh four-week low.
The pound sterling was hurt by the uncertainty about the future of Boris Johnson as Prime Minister of the United Kingdom and the problems of Brexit. In fact, the UK Foreign Secretary is about to introduce a bill that would effectively undo parts of the Brexit deal related to the Northern Ireland Protocol. The European Commission has promised to respond with all measures at its disposal if Britain goes ahead with a plan to rewrite the Brexit deal. Therefore, the legislation could trigger a trade war in the midst of the cost of living crisis, which could make it more difficult for the Bank of England to continue raising interest rates.
Market fears were fueled by disappointing UK macroeconomic data Posted this Monday. Official figures showed that the economy unexpectedly contracted 0.3% in April, which represents the first consecutive decline since the start of the coronavirus pandemic. Also, UK industrial and manufacturing production also posted an unexpected drop in April. The data revealed the impact of rising prices on household spending and business activity, fueling recession fears. Aside from this, the overall strength of the US dollar was seen as another contributing factor to the GBP/USD decline.
The latest US consumer inflation figures released on Friday reaffirmed bets that the Federal Reserve will tighten monetary policy at a faster pace. to cool price pressures. Prospects for a more aggressive Fed continued to support elevated US Treasury yields. This, coupled with the worsening global economic outlook and risk-off sentiment, provided an additional boost to the safe-haven dollar. The fundamental backdrop supports the prospects of a further short-term depreciation move for the GBP/USD pair, although investors may refrain from opening bearish positions. ahead of this week’s FOMC and BoE policy meetings.
GBP/USD technical levels
Source: Fx Street
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