GBP/USD falls to fresh lows amid negative market sentiment

Support levels fell like dominoes on Thursday as the GBP/USD pair continues to react to woes related to Russia’s assault on Ukraine.

Traders ditch risk-sensitive currencies like sterling in favour of safe-haven currencies like the US dollar or Japanese yen as global equities tumble, the pair is on course for its biggest one-day drop since September 2020 of roughly 1.5%.

The said drop has seen the pair fall from the 1.3550 area to current levels under 1.3350 and, in doing so, fall below key support at 1.3500 and 1.3360 to print fresh annual lows.

Such a big intra-day move might have some traders questioning whether the bears might soon run out of steam. Typically, some amount of mean reversion might be expected for GBP/USD after such a big intra-day drop.

That suggests hopes for the pair to test sub-1.3200 2021 lows may have to wait. But with recent geopolitical developments having thrown the outlook for the global economy and central bank policy into uncertainty, GBP/USD’s near-term bias may well remain negative. Any rebound back towards 1.3400, say, may be viewed as a good opportunity for the sellers to reload on positions.

The UK economy was already faced with the prospect of a large hit to living standards in the form of higher taxes, energy prices and phone bills (the latter two starting as of Q2). The latest surge in gas and oil prices (UK gas futures rose more than 30% on Thursday) amid expectations of supply disruptions from Russia due to the West’s sanction response only darkens the outlook.

BoE policymakers have in recent days emphasized that upcoming policy tightening will be “moderate” and the latest developments will further dampen tightening expectations. That probably partly explains why on Thursday, GBP has been one of the worst-hit G10 currencies versus the US dollar.