GBP/USD flirts with 1.2100, lowest in nearly two weeks post-Fed’s Powell and BOE’s Bailey

• GBP/USD witnessed heavy follow-through selling and dropped to a nearly two-week low.
• Fed Chair Powell’s hawkish remarks boosted the USD and exerted downward pressure.
• Comments by BOE Governor Bailey did little to impress bulls or lend support to the pair.

The GBP/USD pair added to the previous day's heavy losses and remained under intense selling pressure for the second successive day on Wednesday. The downward trajectory picked up pace during the early North American session and dragged spot prices to the 1.2100 neighbourhood, or a nearly two-week low.

The US dollar attracted some buying in reaction to hawkish remarks by Fed Chair Jerome Powell and shot to its highest level since June 17. This, in turn, exerted downward pressure on the GBP/USD pair. Speaking at the ECB Forum in Sintra, Powell reaffirmed bets for more aggressive rate hikes and said the US economy is well-positioned to handle tighter policy.

Powell further added that the Fed remains focused on getting inflation under control and the market pricing is pretty close to the dot plot. In contrast, the Bank of England Governor Andrew Bailey sounded cautious and noted that there were clear signs that the economy is slowing. "We are being hit by a very large real income shock," Bailey added further.

Bailey also said that it's very hard to separate the effects of Brexit from covid. This suggested that the BoE would opt for a more gradual approach towards hiking interest rates, which, in turn, weighed on the British pound. Bailey, however, said that the BOE would have to act more forcefully if it saw persistent inflation and the situation left no other options on the table.

Apart from this, sliding US Treasury bond yields, along with a generally positive tone around the US equity markets, might cap gains for the safe-haven USD and limit deeper losses for the GBP/USD pair. That said, sustained weakness below the 1.2100 round-figure mark would be seen as a fresh trigger for bearish traders and set the stage for a further depreciating move.

Technical levels to watch