GBP/USD drops to 1.1700 neighbourhood, lowest since March 2020 amid relentless USD buying

• GBP/USD witnesses selling for the fifth straight day and drops to its lowest level since March 2020.
• Recession fears overshadow BoE rate hike bets and continue to weigh heavily on the British pound.
• Hawkish Fed expectations, the risk-off mood benefits the USD and contributes to the heavy selling.

The GBP/USD pair prolongs a nearly two-week-old downward trajectory and continues losing ground for the fifth successive day on Tuesday. This also marks the eighth day of a negative move in the previous nine and drags spot prices to the 1.1720-1.1715 area, or its lowest level since March 2020 during the early European session.

The recent surge in energy prices has raised concerns over the UK cost of living crisis and intensified fears of a deeper economic downturn. This, to a larger extent, overshadows rising bets for a 50 bps rate hike by the Bank of England in September and continues to undermine the British pound. Apart from this, the relentless US dollar buying exerts additional downward pressure on the GBP/USD pair.

In fact, the USD Index, which tracks the greenback against a basket of six currencies, jumps to a fresh two-decade high amid hawkish Fed expectations. The recent comments by several Fed officials suggested that the US central bank would stick to its policy tightening path. Furthermore, the FOMC meeting minutes released last week indicated that the Fed would continue hiking rates to tame inflation.

Adding to this, expectations of hawkish talk at the Jackson Hole symposium later this week, along with the prevalent risk-off environment, remain supportive of the ongoing USD rally. Recession fears temper investors' appetite for riskier assets, which is evident from a weaker tone around the equity markets. This, in turn, benefits the safe-haven buck and exerts additional pressure on the GBP/USD pair.

The aforementioned fundamental factors favour the USD bulls and support prospects for a further near-term depreciating move for the GBP/USD pair. That said, oversold conditions on short-term charts might hold back traders from placing aggressive bets. Investors might also prefer to wait on the sidelines ahead of this week's important macro releases and Fed Chair Jerome Powell's speech on Friday.

A rather busy week kicks off with the release of the flash UK PMI prints for August. Later during the early North American session, traders will take cues from the US PMIs. This, along with the broader market risk sentiment, might influence the USD price dynamics and provide some impetus to the GBP/USD pair.

Technical levels to watch