GBP/USD dips below 1.2000, focus remains glued to US PCE Price Index

• GBP/USD extends a two-day losing streak, pushing below key 1.2000 watershed.
• Sustained USD buying ahead of the US Core PCE Price Index pushed pair lower.
• Bets for additional rate hikes by the BoE, however, underpin the British Pound.

The GBP/USD pair pierces the 1.2000 psychological mark on Friday, continuing the previous day's slide and reaching a new weekly low. The prevalent bullish sentiment surrounding the US Dollar ahead of US Core PCE prices seems to act as a the primary downside catalyst for this move.

In fact, the USD Index, which tracks the Greenback against a basket of currencies, stands tall near a multi-week high amid the prospects for further policy tightening by the Fed. The bets were reaffirmed by the FOMC minutes released on Wednesday, which showed that officials were determined to continue lifting interest rates to fully gain control over inflation. Moreover, the incoming upbeat US macro data pointed to an economy that remains resilient despite rising borrowing costs and should allow the US central bank to stick to its hawkish stance.

The expectations remain supportive of elevated US Treasury bond yields and continue to underpin the buck. Apart from this, a softer risk tone - amid looming recession risks and geopolitical tensions - is seen as another factor benefitting the safe-haven Greenback and caps the upside for the GBP/USD pair. That said, rising bets for additional rate hikes by the Bank of England (BoE) lend some support to the British Pound and act as a tailwind for the major.

Traders also seem reluctant and now seem to have moved to the sidelines ahead of the release of the US Core PCE Price Index - the Fed's preferred inflation gauge. The crucial data will influence market expectations about the Fed's future rate-hike path. This, in turn, should drive the USD demand and provide a fresh directional impetus to the GBP/USD pair, making it prudent to wait for strong follow-through selling before placing fresh bearish bets.

From a technical perspective the pair remains trapped in broad consolidation range within a medium-term uptrend, that began at the prior year's September lows. The cieling of this range lies at 1.2440 and the base at 1.1850. In addition, the 100 and 200-day SMAs are meeting in a nexus of support just below price in the 1.1920-30s, and any moves down will likely meet demand at that level, suggesting downside may be limited. Even if they are broken, the range floor at 1.1850 is likely to provide a further backstop to any runaway bear moves. To the upside, meanwhile, the 50 DMA at 1.2145 is likely to provide similar resistance. 

Technical levels to watch