The GBP/USD pair remained under intense selling pressure for the third successive day on Monday and plunged to the 1.2700 mark, or its lowest level since September 2020 during the mid-European session.
The British pound was pressured by last week's dismal macro data, which indicated that the UK economy is under stress from the soaring inflation. On the other hand, the prospects for a more aggressive policy tightening by the Fed pushed the US dollar to a more than two-year high and contributed to the heavily offered tone surrounding the GBP/USD pair.
Sterling is taking a broad beating, as well it should, with the economy beset by supply-side limitations, a contracting fiscal outlook and a cost-of-living crisis that is already showing signs of crimping real growth, with last week’s weak March Retail Sales and second-lowest ever April GfK Consumer Confidence reading helping to spark the sterling meltdown on top of the pressure provided by the strengthening US dollar. And this is before the inevitable roll-over in home prices once higher rates begin to bite. The UK has a yawning current account deficit aggravated over the last 6 months by spiraling costs for its energy imports, while recent weak risk appetite reduces the potential for investment capital inflows to offset. The 1.3000 level in GBPUSD gave way on Friday with brutal force and the follow through to kick off this week looks ominous. On the chart, the eye is drawn toward the massive 1.2000 level – arguably the real range support when not considering the worst chaotic days in early 2020 during the reaction to the global pandemic outbreak.
A convincing break below the 1.2700 mark, leading to a subsequent break through the September 2020 low, around the 1.2675 region, will reaffirm the negative bias. The GBP/USD pair might then turn vulnerable to weaken further below the 1.2600 round figure and accelerate the slide towards the 61.8% Fibo. level, around the key 1.2500 psychological mark.
On the flip side, the 1.2755-1.2760 region now seems to act as an immediate resistance ahead of the 1.2800 mark. Any subsequent move up is more likely to run out of steam near the 1.2825-1.2830 region, which should act as a pivotal point. Sustained strength beyond could trigger a near-term short-covering move.