- GBP/USD continues losing ground for the fourth straight day and drops to a fresh monthly low.
- Hawkish Fed expectations, the risk-off mood underpin the safe-haven USD and exert pressure.
- The UK’s bleak economic outlook continues to weigh on the GBP and contribute to the decline.
The GBP/USD pair turns lower for the fourth straight day on Monday and drops to over a one-month low during the early European session. The pair is currently trading just below the 1.1800 round-figure mark and seems vulnerable to prolonging its bearish trend witnessed over the past two weeks or so.
The US dollar buying remains unabated on the first day of a new week and turns out to be a key factor exerting downward pressure on the GBP/USD pair. In fact, the USD Index climbs to its highest level since mid-July amid firming expectations that the US central bank will stick to its aggressive policy tightening path. The bets were reaffirmed by the recent hawkish comments by several Fed officials, which, along with a fresh bout of the global risk-aversion traders, continues to boost demand for the safe-haven greenback.
The British pound, on the other hand, is weighed down by the UK’s bleak economic outlook and growing recession fears. The worries were further fueled by a further deterioration in the UK Gfk consumer confidence index, which dropped to another record low level of -44 in August. This, to a larger extent, overshadowed the prospects for a 50 bps rate hike by the Bank of England in September and might undermine sterling. This, in turn, supports prospects for an extension of the GBP/USD pair’s ongoing depreciating move.
Hence, a subsequent fall towards challenging the YTD low, around the 1.1760 region touched in July, now looks like a distinct possibility. In the absence of any major market-moving economic releases, either from the UK or the US, the USD price dynamics will continue to play a key role in influencing the GBP/USD pair.
Technical levels to watch