GBP/USD plunges below 1.1900 on hawkish remarks by Federal Reserve Chair Powell

GBP/USD plunges over 100 pips as the US Federal Reserve (Fed) Chairman Jerome Powell testifies at the US Senate on Tuesday. The US Dollar is rising despite US Treasury bond yields dropping. At the time of writing, the GBP/USD is trading at 1.1854 after hitting a daily high of 1.2065.

Powell's appearance at the US Senate rocked the boat and bolstered the US Dollar

In prepared remarks for his appearance at the US Senate, the Federal Reserve Chair Jerome Powell commented that the Fed is ready to increase the speed of rate hikes. Powell added, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

The US Dollar Index (DXY), a gauge of the buck’s value against its peers, hit a fresh nine-week high at 105.435 before retracing to current levels of 105.421, up 0.86% in the day. US Treasury bond yields, namely the 10-year yield, pierced the 4% threshold before resting at 3.968%.

The GBP/USD dived from around 1.2000 toward the daily low of 1.1848 as Powell’s Q&A with US Senators ended. However, the GBP/USD meanders around 1.1860s.

The swaps market indicated that bond traders adjusted their expectations for interest rates and now think that a more significant increase of half a point is more probable than a smaller one of a quarter point for the Fed’s meeting on March 22.

On the UK front, Catherine Mann, a monetary policy member of the  Bank of England (BoE), commented that the Pound Sterling (GBP) could face downward pressure if traders had not priced in hawkish comments by the Federal Reserve. She said in an interview that the weakness in the value of the GBP was “significant for inflation,” which has fallen from 11.1 in October though it remained above 10% in January.

GBP/USD Technical analysis

Following Powell’s remarks, the GBP/USD distanced from the daily Exponential Moving Averages (EMAs) as bears moved in aggressively, dragging the major nearby the YTD low of 1.1841. Additionally, the Relative Strength Index (RSI) remains in bearish territory, while volatility increased as portrayed by the Rate of Change (RoC).

Therefore, the GBP/USD path of least resistance is downwards, and its first support would be the YTD low at 1.1841. Break below, and the 1.1800 figure would be tested before diving to the October 27 daily high-turned-support at 1.1645.

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