GBP/USD finds some support near mid-1.1600s, not out of the woods yet amid bullish USD

• GBP/USD drifts lower for the second successive day and drops to its lowest level since March 2020.
• Rising bets for more aggressive Fed rate hikes, the risk-off mood continues to underpin the USD.
• A bleak outlook for the UK economy weighs on the GBP and further contributes to the selling bias.

The GBP/USD pair extends Friday's sharp retracement slide from the 1.1900 round figure and continues losing ground for the second straight day. The downward trajectory drags spot prices to the lowest level since March 2020, around mid-1.1600s during the first half of trading on Monday and is sponsored by strong follow-through US dollar buying.

During his speech at the Jackson Hole Symposium, Fed Chair Jerome Powell squashed hopes of a dovish pivot and signalled that interest rates would be kept higher for longer to bring down inflation. This, in turn, lifts bets for a supersized 75 bps rate hike at the September FOMC meeting and triggers a fresh leg up in the US Treasury bond yields. Apart from this, the prevalent risk-off mood pushes the safe-haven USD to a 20-year peak and turns out to be a key factor exerting pressure on the GBP/USD pair.

The British pound, on the other hand, continues to be weighed down by worries about a deeper economic downturn amid the recent absurd surge in energy prices and the persistent rise in inflation. In fact, the Bank of England had predicted earlier this month that the UK economy will enter a prolonged recession from the fourth quarter of 2022. This, along with some technical selling below the previous YTD swing low, around the 1.1720-1.1715 region, further contributed to the GBP/USD pair's downward trajectory.

That said, slightly oversold conditions on intraday charts seem to hold back bearish traders from placing fresh bets and helping limit further losses, at least for the time being. Nevertheless, the fundamental backdrop supports prospects for an extension of the depreciating move. This, in turn, suggests that any attempted recovery move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly amid absent relevant market-moving economic releases.

Technical levels to watch