GBP/USD weakens further below 1.1800 amid modest USD strength, ahead of Fed’s Powell

The GBP/USD pair comes under some renewed selling pressure on Friday and extends the overnight pullback from the vicinity of the weekly high. Spot prices continue losing ground through the early European session and weaken further below the 1.1800 mark, hitting a fresh daily low in the last hour.

The steady intraday descent is exclusively sponsored by the emergence of fresh buying around the US dollar, bolstered by hawkish Fed expectations. The overnight hawkish remarks by Fed officials reaffirm market expectations for a further policy tightening by the US central bank. In fact, the markets are pricing in a greater chance of a supersized 75 bps rate hike move at the September FOMC meeting.

The British pound, on the other hand, is undermined by worries about a deeper economic downturn, amid the recent absurd surge in energy prices and the persistent rise in inflationary pressures. The Bank of England had predicted earlier this month that the country will enter a prolonged recession from the fourth quarter of 2022 and warned that the UK faces a very big inflation shock.

Apart from the aforementioned fundamental factors, sustained weakness below the 1.1800 mark seems to have aggravated the bearish pressure surrounding the GBP/USD pair. A bearish death cross has just formed on the weekly chart, after the 50-week Simple Moving Average (SMA) crossed below the falling 200-week SMA after last week's bearish close. Additionally a possible bearish pennant pattern may have formed on the daily chart, heralding a fall to at least the 1.15s, if it is confirmed by a downside break accompanied by momentum and selling pressure. At the very least, a subsequent slide towards retesting the YTD low, around the 1.1720-1.1715 area touched earlier this week, looks like a distinct possibility. Much probably depends on Powell's speech at Jackson Hole or the emergence of some other fundamental catalyst. 

Traders are likely to opt to wait on the sidelines until they discern how hawkish Powell's message is at the Jackson Hole Symposium amid the uncertainty over the size of the next rate hike. In the meantime, traders on Friday will further take cues from the US Core PCE Price Index. The data might influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch