- GBP/USD met with a fresh supply on Thursday and dropped back closer to the YTD low.
- Aggressive Fed rate hike bets, recession fears underpinned the USD and exerted pressure.
- Brexit woes continued acting as a headwind for sterling and contributed to the selling bias.
The GBP/USD pair came under some renewed selling pressure on Thursday and remained on the defensive through the early European session. The pair was last seen trading around the 1.1850-1.1845 region, just a few pips above its lowest level since March 2020 touched earlier this week.
The US dollar was back in demand and climbed to a fresh two-decade high amid the prospects for a more aggressive policy tightening by the Fed, which, in turn, exerted downward pressure on the GBP/USD pair. The red-hot US consumer inflation, which accelerated to the highest level since November 1981, cemented the case for another large interest rate hike by the Federal Reserve.
Furthermore, Atlanta Fed President Raphael Bostic said that everything is in play to curb rising inflationary pressures and lifted bets for a historic 100 bps Fed rate hike move in July. Apart from this, growing fears about a possible global recession turned out to be another factor that continued benefitting the greenback's relative safe-haven status against its British counterpart.
Investors remain concerned that rapidly rising interest rates, the ongoing Russia-Ukraine war and fresh COVID-19 curbs in China would pose challenges to global economic growth. This, along with worries that the UK government's controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union, overshadowed the upbeat UK macro data released on Wednesday.
The combination of the aforementioned factors exerted downward pressure on the GBP/USD pair and supports prospects for a further near-term depreciating move. The negative outlook is reinforced by the fact that spot prices have been trending lower along a downward-sloping channel over the past two-and-half weeks or so. This points to a well-established short-term bearish trend.
A convincing breakthrough below the 1.1800 round-figure mark or the YTD low touched on Tuesday, will reaffirm the bearish bias and make the GBP/USD pair vulnerable. Bears might then aim to challenge the lower boundary of the descending trend channel, currently around the 1.1710-1.1700 region, which could act as a near-term base for spot prices.
Technical levels to watch
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