Jul 14, 2022 03:05 AM ET
By: AnalysisWatch
The GBP/USD pair came under renewed selling pressure on Thursday and remained on the defensive during the early part of the European session. The pair last hovered around the 1.1850-1.1845 area, just a few pips above its lowest level since March 2020, touched earlier this week.
The US dollar was back in demand and rose to a fresh two-decade high amid prospects of more aggressive policy tightening by the Fed, which in turn put downward pressure on GBP/USD. US consumer inflation, which accelerated to the highest level since November 1981, strengthened the case for another big interest rate hike by the Fed.
Investors remain concerned that rapidly rising interest rates, the ongoing Russia-Ukraine war and further COVID-19 cuts in China will challenge global economic growth. This, along with concerns that the UK government's controversial Northern Ireland protocol bill could trigger a trade war with the European Union, overshadowed upbeat UK macroeconomic data released on Wednesday.
The combination of the above factors exerted downward pressure on the GBP/USD pair and supports the prospects of further near-term depreciation movement. The negative outlook is reinforced by the fact that spot prices have trended lower along a descending channel over the past two and a half weeks or so. This points to a well-established near-term downtrend.
A convincing break below the 1.1800 round figure or the low of the year touched on Tuesday will reaffirm the downtrend and make GBP/USD vulnerable. The bears could then attempt to challenge the lower boundary of the downtrend channel, currently around the 1.1710-1.1700 region, which could act as a short-term base for spot prices.
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