GBP/USD extends decline to the 1.2500 area, lowest since July 2020

• US dollar remains firm across the board amid risk aversion. 
• Cable down for the fifth consecutive day, losing more than 500 pips. 
• GBP/USD found support at 1.2500 and trimmed losses. 

The GBP/USD dropped further and bottomed at 1.2502, a level last seen back in July 2020. The pair later trimmed losses, rising toward 1.2550. Despite moving off lows, it remains under pressure amid a strong US dollar. 

A daily close far from the lows or in positive territory could be a positive sign for GBP/USD, suggesting not necessarily a recovery but increasing the odds of a consolidation.

The greenback continues to rally across the board amid concerns about the global economic outlook, inflation and monetary policy tightening. The DXY rose to 103.28, the highest level since January 2017 and then pulled back, amid some improvement in investor’s sentiment. US stocks bounced and turned positive again. The Dow Jones gains 0.83%. 

Economic data from the US showed a record goods trade deficit in March, above expectations ($125.0B vs $106.0B); and a decline in Pending Home Sales of 1.2%, less than the 1.6% slide expected. On Thursday, Q1 GDP data will be released. 

Regarding the pound, despite the slide versus the dollar and the volatility across markets, it is recovering against the euro. EUR/GBP dropped below 0.8400, reaching a five-day low. 

“Bank of England tightening expectations have eased a bit.  WIRP suggests another 25 bp hike to 1.0% is fully priced in for the next meeting on May 5, while swaps market is pricing in 175 bp of tightening over the next 12 months vs. 200 bp at the start of this week that would see the policy rate peak near 2.5%”, explained analysts at Brown Brothers Harriman. Under 1.2500, they see a target in GBP/USD at 1.2480, July 2020 low and then 1.2250 the June 2020 low. 

Technical levels