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GBP/USD drops to fresh monthly low, bears flirt with 1.3400 mark amid strong USD

  • GBP/USD witnessed heavy selling for the second successive day amid a broad-based USD strength.
  • The UK political turmoil further undermined the sterling and contributed to the ongoing downfall.
  • Investors now look forward to important US macro releases for some meaningful trading impetus.

The GBP/USD pair dropped to a near one-month low during the early European session, with bears now awaiting a sustained break below the 1.3400 round-figure mark. 

The pair extended the previous day's post-FOMC rejection slide from the 1.3525 region, or the 100-day SMA resistance and witnessed selling for the second successive day on Thursday. This also marked the sixth day of a negative move in the previous six and was sponsored by a broad-based US dollar strength.

The Fed on Wednesday reaffirmed market expectations for an eventual lift-off in March, which triggered a sharp rise in the US Treasury bond yields. In fact, the 2-year US bond yield, which is sensitive to rate hike expectations, shot to a 23-month high and pushed the USD to the highest level since mid-December.

Meanwhile, concerns about a faster policy tightening by the Fed, along with political tensions between Russia and Ukraine, took its toll on the global risk sentiment. This was evident from a slump in the equity markets, which further benefitted the greenback's relative safe-haven status against its British counterpart.

On the other hand, the political turmoil over UK Prime Minister Boris Johnson’s alleged lockdown-busting parties in Downing Street undermined sterling. This, in turn, exerted additional pressure on the GBP/USD pair, though expectations that the Bank of England will hike interest rates might help limit losses.

Nevertheless, the GBP/USD pair, so far, has failed to attract any buying interest and remains at the mercy of the USD price dynamics amid absent relevant macro data from the UK. Traders now look forward to the US economic releases – Advance Q4 GDP, Durable Goods Orders, Weekly Jobless Claims and Pending Home Sales – for a fresh impetus.

Technical levels to watch

 

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