- GBP/USD finds fresh sales on Thursday and falls back near yearly low.
- Expectations of an aggressive Fed rate hike and recession fears are benefiting the USD and putting pressure on the pair.
- Brexit woes continued to act as a headwind for the British pound and contribute to the selling bias.
The pair GBP/USD came under further selling pressure on Thursday and remained on the defensive during the early part of the European session. The pair were last seen around the area of ​​1.1850-1.1845just a few pips above its lowest level since March 2020, touched earlier this week.
The US dollar was in demand again, rising to a new two-decade high amid the prospects for more aggressive Fed policy tightening, which, in turn, put downward pressure on the GBP/USD pair. US consumer inflation, accelerating to the highest level since November 1981, strengthened the case for another big interest rate hike by the Federal Reserve.
In addition, the president of the Atlanta Fed, Raphael Bostic, stated that everything is on the line to curb rising inflationary pressures and raised the stakes for a historic 100 basis point Fed rate hike in July. Aside from this, growing fears about a possible global recession turned out to be another factor that continued to benefit the dollar’s relative safe-haven status vis-Ã -vis its British counterpart.
Investors continue to worry that the rapid rise in interest rates, the ongoing war between Russia and Ukraine, and the new COVID-19 lockdowns in China pose a challenge to global economic growth. This, coupled with concerns that the British government’s controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union, overshadowed upbeat UK macroeconomic data released on Wednesday.
The combination of the aforementioned factors exerted downward pressure on the GBP/USD pair and supports the prospects of a further depreciation movement in the short term. The negative outlook is reinforced by the fact that spot prices have been trending down along a descending channel for the past two and a half weeks or so. This points to a well-established short-term downtrend.
A convincing break below the 1.1800 round level or the yearly low hit on Tuesday will reaffirm the downtrend and make GBP/USD vulnerable. The bears could then try to challenge the lower bound of the downtrend channel, currently in the 1.1710-1.1700 zone.
GBP/USD technical levels to watch
Source: Fx Street
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