GBP/USD Drops On Mixed Sentiment, Firmer Dollar

The sterling begins the trading week down by 100-pips amid broad US dollar strength in the financial markets, courtesy of higher yields as market players expect a 50 bps increase to the Federal Funds Rate (FFR) by the US central bank.

The market sentiment is mixed as European shares rise, while across the pond, equities fluctuate. At the time of writing, the GBP/USD is trading at 1.3078. The US dollar remains firm, while China’s and Eastern Europe’s conflict weighs on sentiment

The US Dollar Index, a gauge of the greenback’s value vs. a basket of rivals, advances 0.42%, reclaims the 99-mark at 99.220, while the US 10-year Treasury yield declines six basis points down to 2.429%.

Factors like China’s Covid-19 outbreak and the continuation of the conflict between Russia and Ukraine keep investors uneasy. The Russian Foreign Minister Lavrov said that a meeting between Zelenskiy and Putin would be counter-productive, while the Kremlin emphasized that there has been no progress.

In the mid-European session, Bank of England’s Governor Andrew Bailey crossed the wires in an event held in Brussels. Bailey said that “swings in commodity markets after Russia’s invasion of Ukraine posed a risk to financial stability, and the challenges facing the world economy are bigger than after the global financial crisis,” per Reuters.

Bailey added that the rise in energy prices would be the most significant since the 1970s. When asked about hiking rates in the May meeting, the BoE Governor said that the situation is “very volatile” after Russia’s invasion of Ukraine, lifting energy prices higher.

US economic docket featured Goods Trade Balance for February, which came at $-106.59B lower than January’s $-107.57B.

Technically; the GBP/USD is still downward biased, and Monday’s fall extended beyond December 8, 2021 lows at 1.3160 and November 13, 2020, daily low at 1.3105, as selling pressure mounts in the pair, as GBP bears eye the 1.3000 figure. Furthermore, crossing the 50-day moving average (DMA) under the 100-DMA, each at 1.3381 and 1.3392, adds fuel to the downward move.

The GBP/USD pair’s first support would be March 15, 1.2999. Breach of the latter would expose November 2, 2020, daily low at 1.2853, followed by September 2020 lows at 1.2675.