GBP/USD rebounds back above 1.3000 after hitting lowest levels since November 2020

GBP/USD hit its lowest level since November 2020 at 1.29817 in earlier Friday trade, weighed at the time by a broad strengthening of the US dollar that say the DXY momentarily eclipse 100 for the first time in nearly two years. But the currency pair has since rebounded to around the 1.3030 level, erasing the day’s losses to about 0.3% versus around 0.7% at worst levels.

That leaves cable on course to post a weekly loss of about 0.6%. The main driver of the USD strength that drove this week’s GBP/USD losses was Fed hawkishness, with the minutes released on Wednesday showing many of the bank’s policymakers were pushing for a 50 bps rate hike at the last meeting, despite Russia’s invasion of Ukraine. The minutes showed strong support for getting rates back to so-called “neutral” quickly, supporting market expectations that the Fed will lift rates in 50 bps intervals at coming meetings.

Meanwhile, the minutes touted a rapid balance sheet reduction rate of $95B per month to start potentially in May, seemingly in line with recent remarks from Fed policymakers that “rapid” balance sheet reduction should start “soon”. Safe-haven demand also likely supported the buck this week amid a drop in global equities, ongoing geopolitical angst and concerns about the upcoming French election.

UK factors did not play a big part in the price action this week, though arguably, sterling upside is being capped by expectations that the BoE is going to turn more dovish in the coming meetings. UK GDP, labour market and Consumer Price Inflation data next week will give traders a little more to think about, although for GBP/USD, US Consumer and Producer Price Inflation readings on Tuesday and Wednesday will be the main event.

An upside surprise in the US data might spur further hawkish Fed bets and further GBP/USD downside. Over the next weeks and months, bears are eyeing a move lower towards the November 2020 lows 1.2850 area and at 1.2680.