GBP/USD plummets to September 2020 lows, around 1.2675 area amid broad-based USD strength

The GBP/USD pair continued losing ground through the early North American session and dived to its lowest level since September 2020, around the 1.2675 region in the last hour.

The US dollar surged to a more than two-year peak and continued drawing support from growing acceptance that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation. In fact, the markets now expect the US central bank to raise interest rates by 50 bps at each of its next four meetings in May, June, July and September.

This, along with the prevalent risk-off environment, drove haven flows towards the greenback. The prospects for rapid interest rate hikes in the US, along with prolonged COVID-19 lockdowns in China, fueled concerns about the global economic slowdown. This, in turn, took its toll on the risk sentiment and benefitted traditional safe-haven assets.

On the economic data front, the headline US Durable Goods Orders fell short of market expectations and increased by 0.8% MoM in March. This, however, marked a solid rebound from the previous month's upwardly revised reading of -1.7%. Adding to this, orders excluding transportation items climbed 1.1% against 0.6% expected and underpinned the buck.

Conversely, the British pound was weighed down by the recent disappointing domestic data, which indicated that the UK economy is under stress from the soaring cost of living. This might have forced investors to scale back their bets on future interest rate hikes by the Bank of England and supports prospects for a further depreciating move for the GBP/USD pair.

With the latest leg down, spot prices have retreated over 400 pips from the vicinity of the 1.3100 round-figure mark touched last week. That said, slightly oversold conditions on short-term charts might hold back bearish traders from placing aggressive bets and help limit any further losses for the GBP/USD pair, at least for the time being.

Technical levels to watch