GBP/USD slides below mid-1.3100s, fresh daily low amid a pickup in USD demand

The GBP/USD pair surrendered its modest intraday gains and dropped to a fresh daily low, below mid-1.3100s  during the early part of the European session.

The pair gained some positive traction during the early part of the trading on Friday, though the uptick ran out of steam near the 1.3180-1.3185 area amid a goodish pickup in the US dollar demand. The lack of progress in the Russia-Ukraine peace negotiations kept a lid on the recent optimistic move in the markets. This was evident from a generally softer risk tone, which drove some haven flows towards the greenback and acted as a headwind for the GBP/USD pair.

Apart from this, the buck was further underpinned by the Fed's hawkish outlook, indicating that it could hike rates at all the six remaining meetings in 2022. Moreover, Fed Chair Jerome Powell said that the US central bank could start shrinking its near $9 trillion balance sheet as soon as the next meeting in May. This, along with a dovish assessment of the Bank of England's decision on Thursday, should continue to cap the upside for the GBP/USD pair.

In fact, the BoE raised its key rate for the third successive meeting, though the 25 bps rate hike disappointed some investors anticipated a more aggressive increase. Moreover, the UK central bank also softened its language around the need for future rate hikes. Apart from this, the 8-1 MPC vote distribution adds credence to the bearish outlook. That said, the overnight rebound from sub-1.3100 levels warrants some caution for bearish traders.

The mixed fundamental/technical set-up makes it prudent to either wait for sustained strength beyond the 1.3200 mark or acceptance below the 1.3100 mark before placing aggressive directional bets. Nevertheless, the GBP/USD pair remains on track to post weekly gains for the first time in the previous four. Market participants now look forward to the US economic docket, featuring the release of Existing Home Sales data for a fresh impetus.

The focus, however, will remain glued to fresh developments surrounding the Russia-Ukraine saga. Traders will further take cues from a meeting between US President Joe Biden and Chinese leader Xi Jinping. The incoming headlines would drive the risk sentiment and influence the USD, allowing traders to grab short-term opportunities around the GBP/USD pair.

Technical levels to watch