GBP/USD pierces below 1.2000 after strong US Retail Sales data

The GBP/USD pair comes under intense selling pressure on Wednesday and extends the previous day's late pullback from over a one-week high. The downfall remains uninterrupted through the mid-European session and drags spot prices below the key 1.2000 psychological level in the last hour.

The British Pound weakens across the board in reaction to softer-than-expected UK consumer inflation figures. This comes on the back of a dovish assessment of the Bank of England's policy decision and suggests that the current rate-hiking cycle might be nearing the end. Apart from this, a strong follow-through buying around the US Dollar contributes to the GBP/USD pair's steep intraday decline of nearly 150 pips.

In fact, the USD Index, which tracks the Greenback against a basket of currencies, stands tall near a multi-week high amid expectations for further policy tightening by the Fed.

Bets were further lifted by the higher-than-expected US Retail Sales figures for January, which came out at 3% MoM, easily beating estimates of 1.8%.

This comes like fuel on the fire after reports of hawkish comments by several FOMC members on Tuesday.

Add to this, the prevalent risk-off mood - as depicted by a generally weaker tone around the equity markets - and it further underpins the safe-haven buck.

With the latest leg down, the GBP/USD pair reverses its weekly gains and seems poised to depreciate further.

From a technical perspective, the pair is in free fall with the next challenge coming into view, the technically significant 200-day SMA support, which is currently pegged near the 1.1935 region.

Overall, both the technical and fundamental backdrops favour bearish trades and suggests that the path of least resistance for spot prices is to the downside.

Technical levels to watch