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Title: GBP/USD slides to fresh daily low, seems vulnerable near mid-1.1900s amid stronger USD

Jul 11, 2022 03:41 AM ET

By: AnalysisWatch

The GBP/USD pair struggled to capitalize on last week's modest recovery move from its weakest level since March 2020 and attracted fresh selling around the 1.2035 region on Monday. The pair continued its steady downtrend during the first day of trading in Europe, falling to a fresh daily low in the 1.1960-1.1955 area in the last hour.

The US dollar returned to a strong uptrend on the first day of the new week, approaching a two-decade high reached on Friday in anticipation of a restrictive stance by the Federal Reserve. On the other hand, recent political turmoil in the United Kingdom and Brexit issues continued to weaken the British pound. This, in turn, exerted some downward pressure on the GBP/USD currency pair.

Markets seem convinced that the U.S. Federal Reserve will maintain its aggressive monetary tightening stance to curb stubbornly high inflation. In fact, the FOMC minutes released last Wednesday indicated that another 50 or 75 basis-point rate hike is likely at the July meeting. In addition, positive monthly U.S. employment numbers have reinforced bets that the Fed will raise rates more quickly.

In contrast, the Bank of England is expected to make gradual rate hikes amid growing recession fears.

Investors also remain concerned that the U.K. government's controversial Northern Ireland Protocol Act could trigger a trade war with the European Union. This is likely to continue to prove a headwind for the pound and favor GBP/USD bears.

Therefore, a further slide towards the round 1.1900 level on the way to the low for the year at 1.1875, which was reached last week, remains a distinct possibility. With no major market-moving economic data to be released from either the UK or the US, USD price momentum will play a key role in influencing the GBP/USD pair and creating short-term trading opportunities.

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