GBP/USD struggles below 1.1600 mark, remains vulnerable near 2-year low

GBP/USD remains depressed for the fifth straight day and drops to a two-and-half-year low.
A bleak outlook for the UK economy continues to weigh on sterling and act as a headwind.
Aggressive Fed rate hike bets, a weaker risk tone benefits the USD and contributes to the slide.

Haresh Menghani FXStreet

The GBP/USD pair recovers a few pips from a two-and-half-year low touched earlier this Thursday. The pair remains on the defensive through the first half of the European session and is currently placed just below the 1.1600 round-figure mark.

The British pound continues with its relative underperformance amid the deteriorating outlook for the UK economy and political uncertainty. Market participants seem concerned that if Liz Truss was named as the next UK Prime Minister, her government’s policies of tax cuts and spending would diverge from the Bank of Englan d's attempts to get inflation under control. This, to a larger extent, overshadows bets for a 75 bps rate hike by the BoE in September. This, along with the underlying bullish tone surrounding the US dollar, drags the GBP/USD pair lower for the fifth successive day.

The greenback remains well supported by firming expectations that the Fed will stick to its aggressive policy tightening path to curb stubbornly high inflation. In fact, the markets have priced in a supersized 75 bps rate hike at the September FOMC meeting and the bets were reaffirmed by the recent hawkish comments by several Fed officials. This, in turn, pushes the yield on the 2-year US government bond, which is highly sensitive to rate hike expectations, to a 15-year high and continues to underpin the greenback.

Apart from this, the prevalent risk-off environment - as depicted by a weaker trading sentiment around the equity markets - is offering additional support to the safe-haven buck. Investors remain concerned about a deeper global economic downturn and the fears were further fueled by Thursday's disappointing Chinese Manufacturing PMI for August. Adding to this, headwinds stemming from fresh COVID-19 lockdowns in China temper investors' appetite for riskier assets and seem to benefit traditional safe-haven assets.

The fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the downside amid absent relevant market-moving macro data from the UK. Later during the early North American session, traders might take cues from the US economic docket - featuring Weekly Initial Jobless Claims and the ISM Manufacturing PMI. This, along with the US bond yields and the broader risk sentiment, might influence the USD and provide some impetus to the GBP/USD pair ahead of the US jobs report (NFP) on Friday.

Technical levels to watch

GBP/USD

Overview
Today last price	1.1584
Today Daily Change	-0.0038
Today Daily Change %	-0.33
Today daily open	1.1622

Trends
Daily SMA20	1.1942
Daily SMA50	1.2013
Daily SMA100	1.2264
Daily SMA200	1.2809

Levels
Previous Daily High	1.1694
Previous Daily Low	1.1599
Previous Weekly High	1.19
Previous Weekly Low	1.1717
Previous Monthly High	1.2294
Previous Monthly Low	1.1599
Daily Fibonacci 38.2%	1.1635
Daily Fibonacci 61.8%	1.1658
Daily Pivot Point S1	1.1583
Daily Pivot Point S2	1.1543
Daily Pivot Point S3	1.1488
Daily Pivot Point R1	1.1678
Daily Pivot Point R2	1.1733
Daily Pivot Point R3	1.1773

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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