GBP/USD recovers a bit after hitting fresh YTD low, keeps the red below 1.2300 mark

The GBP/USD pair managed to rebound a few pips from its lowest level since June 2020 touched during the early European session and was last seen trading just below the 1.2300 mark, still down over 0.40% for the day.

The pair added to last week's heavy losses that followed the Bank of England's dovish rate hike and witnessed some follow-through selling for the third successive day on Monday. It is worth recalling that the UK central bank raised interest rates to their highest level since 2009 but warned that the economy was at the risk of a recession. The gloomy outlook suggested that the current rate hike cycle could be nearing a pause, which, in turn, was seen as a key factor that undermined the British pound.

On the other hand, the US dollar stood tall near a two-decade high and continued drawing support from expectations that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation. The markets are still pricing in a further 200 bps Fed rate hike move for the rest of 2022. This, in turn, pushed the yield on the benchmark 10-year US government bond to its highest level in more than a decade, which, along with the prevalent risk-off mood, further underpinned the safe-haven greenback.

Firming expectations for rapid interest rate hikes in the US, along with strict COVID-19 lockdowns in China, have raised concerns about slowing global growth and a possible recession. This, in turn, took its toll on the global risk sentiment and tempered investors' appetite for riskier assets. The anti-risk flow and the Fed-BoE policy divergence support prospects for additional losses. That said, oversold conditions assisted the GBP/USD pair to find some support just ahead of the mid-1.2200s.

Spot prices quickly recovered around 35-40 pips from the daily low, though any meaningful upside still seems elusive. Hence, any further move up is more likely to attract fresh sellers and runs the risk of fizzling out rather quickly. In the absence of any major market-moving economic releases, either from the UK or the US, traders will take cues from the USD price dynamics. Apart from this, a scheduled speech by the BoE MPC member, Michael Saunders, could provide some impetus to the GBP/USD pair.

Technical levels to watch