GBP/USD drops to over one-week lows near 1.3720-15 area, lacks follow-through

• GBP/USD extended the previous day’s sharp pullback and lost additional ground on Wednesday.
• A turnaround in the global risk sentiment benefitted the safe-haven USD and exerted pressure.
• The downside remains cushioned amid expectations for an imminent BoE rate hike next week.

The GBP/USD pair witnessed heavy selling during the early European session and dropped to one-and-half-week lows, around the 1.3720-15 region in the last hour.

Following a brief consolidation through the first half of the trading action on Wednesday, the GBP/USD pair met with a fresh supply and extended the previous day's slide from the 1.3825-30 resistance zone. A turnaround in the risk sentiment – as depicted by an intraday decline in the equity markets – extended some support to the safe-haven US dollar. This, in turn, was seen as a key factor that exerted some downward pressure on the major.

On the other hand, tensions between the UK and France over fishing rights and a fresh row over the Northern Ireland protocol acted as a headwind for the British pound. This, along with some cross-driven weakness stemming from a goodish rebound in the EUR/GBP cross, weighed on the sterling. Wednesday's downfall could further be attributed to technical selling on a sustained break below a short-term ascending trend-channel support.

Meanwhile, the risk-off impulse in the markets led to a further decline in the US Treasury bond yields amid uncertainty over the likely timing of the policy tightening by the Fed. In fact, the yield on the benchmark 10-year US government bond declined for the fourth successive day and slipped below the 1.60% threshold. This held the USD bulls from placing aggressive bets and limited any deeper losses for the pair, at least for the time being.

Market participants now look forward to the UK annual government budget announcement by the UK Finance Minister Rishi Sunak. Later during the early North American session, traders might take cues from the US Durable Goods Orders data. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some meaningful trading opportunities around the GBP/USD pair.

Technical levels to watch