Risk aversion, strong dollar drag GBP/USD lower

The GBP/USD pair has experienced a 0.46% loss due to risk aversion following the Bank of England’s decision. The Fed’s higher-for-longer stance continues to support the Greenback, with speakers emphasizing the need for another rate hike and sustained high rates. The Sterling is expected to weaken against the US Dollar, with sellers aiming for the 1.2000 level. The GBP/USD is trading at 1.2159 after hitting a daily high of 1.2215.

Traders are bracing for the “higher-for-longer” Federal Reserve’s mantra, which has kept the Greenback rallying due to high US bond yields. Minnesota Fed President Neil Kashkari has said that another rate hike is needed, and then it would be necessary to hold rates at that level while adding that a soft landing is possible. Fed speakers have also stressed the need for patience and a 25-bps hike toward the end of the year.

On the UK front, the lack of data leaves traders leaning on the latest Bank of England’s (BoE) decision, perceived as a dovish one, following an inflation report showing a cooling down of inflation. The GBP/USD is downward biased, and after dropping below the May 25 low of 1.2308, it opened the door for further losses.

The major hovers in the mid 1.2100/1.2200 figure, though a breach below 1.2100 could open the door to test the March 15 daily low of 1.2010 before testing the 1.2000 figure.