- GBP/USD falls to its lowest level since March 2020 and is under pressure from a combination of factors.
- The gloomy economic outlook for the UK weighs on the British pound amid broad dollar strength.
- Traders await the UK Prime Minister’s announcement amid relatively tight liquidity conditions.
The pair GBP/USD start the new week with a weaker tone and hits a new low since March 2020 at the start of the European session on Monday. However, the pair manages to bounce a few pips, although remains defensive below the psychological level of 1.1500.
The British pound continues to be weighed down by gloomy prospects for the British economy and uncertainty about the economic policy of the next British Prime Minister. The recent rise in energy prices has raised concerns about the UK’s cost of living crisis and intensified fears of a deeper economic recession. Concerns were fueled by the latest forecast from the British Chamber of Commerce (BCC), which expects the British economy to post three consecutive quarters of contraction this year.
Apart from this, the strong bullish sentiment surrounding the US dollar continues to put some downward pressure on the GBP/USD pair. As investors brush aside Friday’s US jobs report, firm expectations that the Fed will maintain its aggressive tightening policy to control inflation lifts the dollar to a new two-decade high. In fact, markets are pricing in a higher probability of a 75 basis point rate hike at the next FOMC policy meeting on September 20-21.
This, in turn, continues to support elevated US Treasury yields and continues to support the dollar. That said, signs of stability in financial markets seem to act as a headwind for the dollar as a safe haven, amid relatively thin trading volume due to the US Labor Day holiday. Traders also appear reluctant to open aggressive positions preferring to wait on the sidelines ahead of the announcement of the next UK Prime Minister this Monday at 11:30 GMT.
Technical levels to watch
Source: Fx Street
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