GBP/USD drops closer to 1.1900 as USD surges to a fresh two-decade high ahead of NFP

• GBP/USD witnessed fresh selling on Friday and eroded a major part of the overnight gains.
• Domestic issues continued weighin on the British pound and acted as a headwind for the pair.
• Fed rate hike bets lifted the USD to a fresh 20-year high and contributed to the selling bias.
• Investors now look forward to the US monthly employment report (NFP) for a fresh impetus.

The GBP/USD pair attracted fresh selling near the 1.2055 region on Friday and has now reversed a major part of the previous day's positive move. The intraday downfall picked up pace during the early European session and dragged spot prices to a fresh daily low, back closer to the 1.1900 mark in the last hour.

The British pound did get a minor lift on Thursday after Boris Johnson announced that he would quit as British Prime Minister and ended the recent political drama at 10 Downing Street. The market reaction, however, turned out to be short-lived as Johnson's departure was almost a certainty and was largely priced in by markets. Furthermore, other domestic issues continued acting as a headwind for sterling, which, along with a fresh bout of the US dollar buying, exerted fresh downward pressure on the GBP/USD pair.

Investors remain concerned that the UK government's controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union amid the cost of living crisis. Furthermore, the Bank of England is expected to adopt a gradual approach toward raising interest rates amid growing recession fears, which further undermined the GBP. In contrast, minutes of the June 14-15 FOMC meeting released on Wednesday reinforced bets for a faster policy tightening and continued lending support to the US dollar.

In fact, policymakers emphasized the need to fight inflation even if it meant slowing an economy and indicated that another 50 or 75 bps rate hike is likely at the July meeting. Apart from this, the prevalent cautious market mood pushed the safe-haven greenback to a fresh two-decade high, which further contributed to the GBP/USD pair's intraday decline. Market participants now look forward to the US monthly jobs report (NFP), due later during the early North American session, for a fresh trading impetus.

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