• GBP/USD dived to over one-month low on Thursday amid the post-FOMC USD strong buying.
  • A stronger US Q4 GDP report also underpinned the USD and contributed to the overnight slide.
  • Rising bets for additional BoE rate hike helped limit losses and gain positive traction on Friday.

The GBP/USD pair witnessed heavy selling on Thursday and dived to its lowest level since December 23 amid an extension of the post-FOMC strong US dollar rally. The Fed on Wednesday reaffirmed market expectations for an eventual lift-off in March and also indicated that it could raise interest rates at a faster pace than anticipated. The market was quick to react and started pricing in the possibility of five quarter-point rate hikes by the end of 2022. Moreover, short-term interest rate futures imply a 20% risk that the first hike in March could be 50 basis points, which, in turn, continued underpinning the greenback.

The buck held on to its strong gains after the first estimate of the US GDP report showed that growth in the world's largest economy accelerated to a 6.9% annualized pace during Q4 2021. This was well above consensus estimates pointing to a reading of 5.5%. For 2021 as a whole, the economy expanded by 5.8% and notched its strongest growth in nearly four decades. Separately, the Initial Jobless Claims fell to 260K last week from 290K previous. This, to a larger extent, helped offset weaker US Durable Goods Orders and Pending Home Sales and did little to dent the strong bullish sentiment surrounding the greenback or lend any support to the pair.

Apart from this, growing demands for UK Prime Minister Boris Johnson's resignation over a series of lockdown parties in Downing Street weighed on the British pound. This was seen as another factor that exerted additional pressure on the major, though expectations that the Bank of England will hike interest rates help limit further losses. The pair managed to find some support ahead of mid-1.3300s and regained positive traction during the Asian session on Friday. A recovery in the risk sentiment held back traders from placing fresh bullish bets around the safe-haven greenback, which, in turn, was seen as a key factor that extended some support to the major.

There isn't any major market-moving economic data due for release from the UK, leaving the pair at the mercy of the USD price dynamics. Later during the early North American session, traders will take cues from the US economic docket – featuring the Core Personal Consumption Expenditure Price index and revised Michigan Consumer Sentiment Index for January. This, along with the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities around the major on the last day of the week.

Technical outlook

From a technical perspective, the pair showed some resilience below the 61.8% Fibonacci retracement level of 1.3161-1.3749 strong move up. The subsequent move up suggests that the recent rejection slide from the very important 200-day SMA, around mid-1.3700s, or a two-month high touched on January 13 has run its course. That said, it will be prudent to wait for a sustained strength back above the 50% Fibo. level, around the 1.3450 region, before positioning for any further gains. The pair could then accelerate the momentum towards reclaiming the key 1.3500 psychological mark en-route the 1.3520 confluence. The latter comprises the 100-day SMA and the 38.2% Fibo. level, which if cleared decisively will negate any near-term bearish bias.

On the flip side, the 1.3380 region now seems to protect the immediate downside ahead of the overnight swing low, around mid-1.3300s. Some follow-through selling will be seen as a fresh trigger for bearish traders and expose the next relevant support near the 1.3320 region. This is closely followed by the 1.3300 mark. Failure to defend the mentioned levels would make the pair vulnerable and pave the way for a slide towards the 1.3240 intermediate support en-route the 1.3200 round figure.

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