GBP/USD Sets New 2+ Year Lows on Continued USD Strength

GBP/USD Analysis

Markets remain jittery as they grapple with recession fears, increased Covid-19 cases in China, Russian gas supply disruption in Europe and other factors. Along with the aggressive rate hike path by the US Fed, the US Dollar's appeal remains high.

The Fed is widely expected to hike rates by 50 or 75 basis points later this month, after June's historic increase, with officials mostly dismissing worries that this would spark an economic downturn.

St Louis Fed President Mr Bullard, who is a prominent hawk and voter, expressed his confidence that the bank can bring down inflation without disrupting the economy, speaking on Associated Press on Monday. ^[1]

His peer form Kansas City Ms Geroge (voter) however, who had dissented in June, struck a more cautious tone, since she talked about "growing discussion of recession risk". ^[2]

On the other side of the Atlantic, the contest for Mr Johnson's successior gets underway, with the new UK Prime Minister expected to be announced on September 5, as per Sir Graham Brady who is he Chairman of the Tory 1922 Committee. ^[3]

GBP/USD runs another negative week with losses in excess of 2.5% at the time of writing, setting new 2+ year lows today. This exposes the pair to the 1.1680 region, although it is probably early to talk for a larger decline that would bring the pandemic multi-decade lows of March 2020 (1.1409) in the spotlight.

On the other hand, the Relative Strength Index (RSI) moves to oversold levels, which could provide GBP/USD some respite and the chance to rebound back to 1.1900. However, the upside looks tough and significant improvement in sentiment would be needed, in order to challenge the key 1.1960-1.2000 area.

The economic calendar contains quite a few noteworthy releases this week. US CPI Inflation stands out on Wednesday and can cause volatility, determine the pair's move and the Fed's actions.