- GBP/USD witnesses strong selling on Wednesday and falls to a new weekly low.
- Dovish Bank of England expectations, recession fears and Brexit woes weigh on sterling.
- A nice pickup in dollar demand puts further downward pressure on the pair.
- The drop appears to be supported, as attention turns to Fed Chairman Jerome Powell’s testimony.
The pair GBP/USD has reached its weekly low during the first part of the European session, although has managed to find some support ahead of 1.2150 and has managed to recover some pips since then. At time of writing the pa is trading at 1.2258, down -0.12% on the day.
The US dollar regained positive traction amid the growing market acceptance that the Fed will maintain its tightening policy and raise interest rates at a faster pace to curb rising inflation. In fact, markets have been pricing in another 75 basis point rate hike at the next FOMC meeting in July. This, along with a new wave of risk aversion worldwide, boosted the dollar as a safe haven and put downward pressure on the GBP/USD pair.
The pound sterling was further weighed down by expectations that the Bank of England will adopt a more gradual approach on rising interest rates amid recession fears and the cost-of-living crisis. Market fears were fueled by the latest data on consumer inflation in the UK, which showed that headline CPI rose to a new 40-year high at 9.1% in May. In monthly terms, the gauge slowed sharply from April’s 2.5% rise and rose 0.7%.
Apart of this, the impasse between the United Kingdom and the EU in relation to the protocol on Northern Ireland of the Brexit agreement further weighed on the British pound and contributed to the intraday drop in the GBP/USD pair. Meanwhile, the flight to the safe haven caused a modest pullback in US Treasury yields and deterred dollar bulls from opening aggressive positions. This, in turn, was seen as the only factor that helped the pair bounce around 100 pips from the daily low.
However, it remains to be seen whether GBP/USD is able to capitalize on the intraday rebound as investors await Fed Chairman Jerome Powell’s testimony before the Senate Banking Committee. Market participants will be looking for further clues on the Fed’s monetary policy tightening path, which would play a key role in influencing dollar price dynamics. This, in turn, should help investors determine the next directional move for the GBP/USD pair.
GBP/USD technical levels
Source: Fx Street
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