GBP/USD looks into the abyss, new weekly ranges in sight

GBP/USD tumbled around 1.27% on Tuesday and below the July-Sep lows amid risk aversion as a steep rise in US Treasury bond yields and fears for the economic impact of a shortage of gas in Britain overshadowed rate rise expectations from the Bank of England. 

At the time of writing, moments after the closing bell on Wall Street, GBP/USD is trading down 1.2% after falling from a high of 1.3717 to a low of 1.3520. Global risk-off flows weighed on the pair, pushing it near oversold levels on daily studies, but it still appeared headed down toward its weekly cloud base and 38.2% Fibo of the 1.1413-1.4250 pandemic recovery at 1.31575/66. See more on this below. 

Market's price in hawkish Fed

Meanwhile, US yields have surged since last week's Federal Reserve meeting where it said it may start tapering stimulus as soon as November and flagged interest rate increases could follow sooner than expected. Fed Chair Jerome Powell signalled nervousness about inflation, which has seen the US 10-year yields rise above 1.54% to the highest since mid-June as the markets price-up higher future inflation in financial markets. 

Brexit: UK petrol crisis

Across the pond, the British 10-year gilt yields also climbed and up to their highest since the pandemic started above 1%. However, there are major worries about how gas and petrol shortages could impact the British economy as prices soar in the energy complex. The UK has been facing a fuel distribution issue for a number of days which is moving to the fore in the financial media's headlines. Some petrol station pumps have now completely run dry across the nation due to a post-Brexit shortage of truckers that have triggered panic buying. The risks flow over to the covid situation as this has raised fears that hospitals would be left without doctors and nurses.

BoE flips hawkish, yet doesn't help GBP/USD

On the other side of the spectrum, however, GBP/USD rallied the week prior on the back of the BoE's hawkish tone on interest rates. The Old Lady's Governor, Andrew Bailey, repeated his stance at the start of this week by saying that the Monetary Policy Committee has begun to move closer to the hawkish side of the scale and that the case to raise interest rates is drawing closer. Bailey added that every MPC member is prepared to hike rates this year if needed to prevent higher inflation. 

''Perhaps this is all just jaw-boning and tough talk, but the fact of the matter is that the U.K. economic outlook remains very fragile and we do not think this hawkishness is helpful,'' analysts at Brown Brothers Harriman argued. ''It certainly isn’t helping the pound, which is trading at the lowest level this week near $1.3625 and on track to break below the July low near $1.3570.  After that is the 2021 from January near $1.3450.''

GBP/USD technical analysis

As touched on above, GBP/USD has fallen beneath July, August and September key lows at 1.35725-609. GBP/USD could be headed toward its weekly cloud base and 38.2% Fibo of the 1.1413-1.4250 pandemic recovery at 1.31575/66.