- GBP/USD slipped into negative territory for the fourth day in a row amid the cautious market mood.
- The Russia-Ukraine crisis and stagflation fears acted as a tailwind for the USD and capped intraday gains.
- BoE rate hike expectations prevented bears from making further bets and capped the decline for now.
The pair GBP/USD struggled to capitalize on its modest intraday bounce and was last seen trading below 1.3100, or the lowest level since November 2020.
After a rally to the 1.3130-35 area during the European session, the GBP/USD found fresh supply on Tuesday and fell for the fourth day in a row. The worsening situation in Ukraine overshadowed initial optimism led by reports that the European Union (EU) might consider massive joint sales of bonds to finance energy and defense. This was evident from the modest decline in equity markets, which helped the safe-haven US dollar trim its intraday losses and put some downward pressure on the pair.
Furthermore, investors remain concerned about the economic fallout from the Russian invasion of Ukraine. Adding to this, recent monster gains in commodity prices have fueled fears of an inflationary shock to the world economy, increasing the risk of stagflation. This could continue to weigh on global risk sentiment, which coupled with a sharp rise in US Treasury yields, should act as a tailwind for the dollar. The fundamental backdrop suggests that the path of least resistance for GBP/USD is to the downside.
That said, expectations that the Bank of England (BoE) will continue to raise rates at its March meeting could provide support for the British pound. This could help limit GBP/USD losses amid mild oversold conditions on the daily chart. In the absence of major market-moving economic releases, attention will remain on new developments surrounding the Russia-Ukraine saga. Aside from this, US bond yields will influence USD price dynamics and create some short-term trading opportunities around the GBP/USD pair.
Technical levels
Source: Fx Street
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