GBP/USD accelerates losses to the 1.2040 region amidst rising risk aversion
- GBP/USD comes under pressure after climbing to 1.2180.
- The strong rebound in the greenback weighs on the risk complex.
- UK Chancellor Hunt delivered the Spring Budget.
In line with the rest of the risk-linked assets, GBP/USD faces renewed and strong downside pressure and revisits the 1.2040 region on Wednesday.
GBP/USD weaker on risk-off mood
GBP/USD adds to Tuesday’s decline and probes the area of 3-day lows in the 1.2045/40 band midweek on the back of the acute move higher in the greenback, which appears propped up by increasing risk aversion in the global market.
Indeed, the bearish mood among investors remains on the rise following fears over the European banking system, all exacerbated in response to negative news from Swiss lender Credit Suisse.
On the domestic front, Chancellor J.Hunt delivered the Spring Budget. On this, the Office for Budget Responsibility (OBR) now sees the economy avoiding a technical recession this year and expects inflation to drop to 2.9% at some point by year end. The OBR also sees the economy contracting just 0.2% this year and expanding 1.8% in 2024 and 2.5% in 2025.
What to look for around GBP
Same as with the rest of the risk complex, the British pound is expected to track the dollar’s price action and the policy divergence between the Federal Reserve and the Bank of England when it comes to near-term direction.
Furthermore, the UK economy’s bleak outlook for the remainder of the year in combination with persistent elevated inflation leaves the prospects for further gains in the Sterling somewhat curtailed in the short term, while the BoE approaching its terminal rate does not look helpful for the quid either.
GBP/USD levels to consider
As of writing, the pair is retreating 0.90% at 1.2045 and faces the next support at 1.1891 (200-day SMA) followed by 1.1802 (2023 low March 8) and finally 1.1142 (monthly low November 4 2022). On the flip side, the breakout of 1.2203 (monthly high March 14) would open the door to 1.2269 (weekly high February 14) and then 1.2447 (2023 high January 23).