GBP/USD slides to fresh daily low, seems vulnerable near mid-1.1900s amid stronger USD

• GBP/USD met with a fresh supply on Monday amid broad-based USD strength.
• Aggressive Fed rate hike bets pushed the USD back closer to a two-decade high.
• Domestic issues continued weighing on the GBP and added to the selling bias.

The GBP/USD pair struggled to capitalize on last week's modest recovery move from its lowest level since March 2020 and attracted fresh selling around the 1.2035 region on Monday. The pair extended its steady intraday descent through the early European session and dropped to a fresh daily low, around the 1.1960-1.1955 region in the last hour.

The US dollar regained strong positive traction on the first day of a new week and inched back closer to a two-decade high touched on Friday amid hawkish Fed expectations. On the other hand, the recent political turmoil in the UK and Brexit woes continued undermining the British pound. This, in turn, exerted some downward pressure on the GBP/USD pair.

The markets seem convinced that the US central bank would retain its aggressive policy tightening path to curb stubbornly high inflation. In fact, the FOMC minutes released last Wednesday indicated that another 50 or 75 bps rate hike is likely at the July meeting. Adding to this, the upbeat US monthly employment figures reaffirmed bets for faster Fed rate hikes.

In contrast, the Bank of England is expected to adopt a gradual approach toward raising interest rates amid growing recession fears. Investors also remain concerned that the UK government's controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union. This should continue to act as a headwind for sterling and favours the GBP/USD bears.

Hence, a subsequent slide towards the 1.1900 round-figure mark, en-route the YTD low around the 1.1875 region touched last week, remains a distinct possibility. In the absence of any major market-moving economic releases, either from the UK or the US, the USD price dynamics will play a key role in influencing the GBP/USD pair and produce short-term trading opportunities.

The market focus, however, would remain on the release of the latest US consumer inflation figures, due on Wednesday. This week's US economic docket also features the release of monthly Retail Sales data and Prelim Michigan Consumer Sentiment on Friday. The data will drive the USD demand and provide a fresh directional impetus to the GBP/USD pair.

Technical levels to watch