• GBP/USD tumbled to multi-month lows below 1.3000 amid policy divergence.
  • The UK slapped new sanctions on Russian banks, oil and coal imports.
  • Focus shifts to UK and US inflation amid looming Ukraine risks.

GBP/USD booked the second straight week of losses, as bears refused to give in amid hawkish Fed-driven sentiment and risk-aversion. Cable touched its lowest level since November below 1.3000, as King dollar reigned supreme, partly buoyed by the US bond market rout. With UK and US inflation dropping next week, the downside risks for the currency pair remain intact.

GBP/USD sold-off into policy divergence, Russian sanctions

The risk-off flows and the dollar’s demand remained the central narrative this week, which revived the downside for GBP/USD after witnessing a consolidative phase a week ago. GBP/USD stood resilient at the start of the week, in the face of the heightening tensions between the West and Russia over Ukraine. Over the weekend, Ukraine accused Russia of mass killings of civilians in the Ukrainian city of Bucha. Russia declined committing any war crimes. These re-ignited tensions and prompted the US, Europe and the UK to propose additional sanctions against Moscow. Meanwhile, the greenback continued to cheer Friday’s upbeat US labor market report and hawkish comments from San Francisco Fed President Mary Daly, which fanned expectations of a 50 bps May Fed rate hike.

Cable extended its renewed upside on Tuesday and tested 1.3100 following the Bank of England (BOE) Deputy Governor Jon Cunliffe’s hawkish remarks, citing that “further policy tightening might be appropriate to tame inflation.”

The major, however, changed its course and tumbled towards monthly lows, as risk-aversion bolstered haven demand for the buck amid increased expectations that the European Union (EU) will call for a ban on Russian energy imports. The sell-off extended into Wednesday, as the pair hit fresh monthly lows below 1.3050 on the renewed US dollar’s strength, in the wake of the relentless rise in the Treasury yields across the curve. Fed Vice Chairwoman Lael Brainard’s calls for a bigger rate hike and the balance sheet reduction in May, added extra legs to the rally in the yields as well as the dollar.

The pain for GBP bulls deepened after the Fed March meeting’s minutes delivered a hawkish surprise. The minutes revealed that the board members outlined plans to reduce the balance sheet by more than $1 trillion a year while hiking interest rates. This alongside the hawkish Fed commentary and upbeat US Services PMI data cemented a deal for a 50 bps lift-off in May, underscoring the monetary policy divergence between the Fed and the BOE.

Adding further to the pound’s misery, the UK announced a full asset freeze on the largest Russian bank while announcing to end all imports of Russian coal and oil by the end of 2022. St. Louis Fed President James Bullard said on Thursday, the central bank needs to hike its benchmark short-term borrowing rate to about 3.5%, which propelled the US dollar index to the highest level since May 2020 and the yields to a three-year top.

GBP/USD: Week ahead

After a relatively data-light week, markets are bracing for an action-packed week ahead with top-tier economic data slated for release from both sides of the Atlantic. Nevertheless, it should be noted that it will be a holiday-shortened week, as the UK and European markets will be closed on Friday, in observance of Holy Friday.

Monday sees the UK monthly GDP dropping alongside the country’s Manufacturing and Industrial output data. The EU is set to discuss further sanctions on Monday, with an oil embargo on Russia likely on the cards.

Next of relevance for GBP traders will be the Kingdom’s labor market report due on Tuesday. The all-important US Consumer Price Index (CPI) will be also published later in Tuesday’s American session. That will be followed by the critical UK inflation data on Wednesday, with the rate already sitting at 30-year highs above 6%. The US Producers Price Index (PPI) will also hit that day.

On Thursday, the US Retail Sales, weekly Jobless Claims and Preliminary Michigan Consumer Sentiment data will keep traders busy amid a data-dry UK docket. Apart from the economic data releases, the Fed commentary and the incoming updates on the Ukraine crisis will drive the market sentiment.

GBP/USD: Technical analysis

The Relative Strength Index (RSI) indicator on the daily chart continues to edge lower but holds above 30, suggesting that GBP/USD could suffer further losses before turning technically oversold. Additionally, the descending trendline coming from late February stays intact, confirming the bearish bias.

If the pair makes a daily close below 1.3000 (psychological level, static level) and starts using that level as resistance, it could extend its slide toward 1.2900 (psychological level, static level) and 1.2800 (psychological level, static level).

On the upside, 1.3100 (descending trend line, 200-week SMA) aligns as key resistance. In order to attract buyers, the British pound needs to clear that hurdle. In that case, 1.3150 (static level) and 1.3200 (static level, psychological level) could be seen as the next recovery targets.

GBP/USD: Sentiment poll

Despite the fact that GBP/USD suffered heavy losses this week, experts see the pair staging a modest rebound toward the mid-1.3000s next week. The one-month outlook paints a mixed picture and the average target of 1.3052 could be seen as a sign pointing to a near-term consolidation.

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD falls below 1.0500 after US NFP data

EUR/USD falls below 1.0500 after US NFP data

EUR/USD dropped below 1.0450 but managed to stage a modest rebound. The US Dollar preserves its strength against its rivals and doesn't allow the pair to gain traction after the data from the US showed that Nonfarm Payrolls rose by 263,000 in November.

EUR/USD News

GBP/USD turns south on upbeat US jobs report, trades below 1.2200

GBP/USD turns south on upbeat US jobs report, trades below 1.2200

GBP/USD lost nearly 100 pips with the immediate reaction to the upbeat November jobs report from the US and broke below 1.2200. The US Dollar Index clings to strong daily gains above 105.00 after the data showed that Nonfarm Payrolls rose by 263,000.

GBPUSD News

Gold retreats below $1,790 as US yields surge on US NFP

Gold retreats below $1,790 as US yields surge on US NFP

Gold price turned south and dropped below $1,790 in the early American session. The benchmark 10-year US Treasury bond yield is up more than 2% on the day near 3.6% after the bigger-than-expected November job growth, weighing heavily on XAU/USD.

Gold News

FTX exchange collapse, loss of $3.1 billion could have been avoided on one condition

FTX exchange collapse, loss of $3.1 billion could have been avoided on one condition

FTX exchange, founded by Samuel Bankman-Fried (SBF), has consistently made headlines over the past month for its liquidity crisis and triggering a collapse in the crypto ecosystem.

Read more

AMC advances more than 3% in premarket day after being halted

AMC advances more than 3% in premarket day after being halted

AMC stock is up 3.4% in Friday's premarket just a day after authorities halted trading due to unusual volatility. Thursday saw options volume three times higher than the 20-day average.

Read more

Majors

Cryptocurrencies

Signatures