GBP/USD struggles near March 2020 low, seems vulnerable amid blowout USD rally

• GBP/USD meets with a fresh supply on Wednesday and drops to its lowest level since March 2020.
• The BoE policymakers failed to lift bets for a 75 bps September rate hike and weighed on the GBP.
• The relentless USD buying contributes to the decline and supports prospects for additional losses.

The GBP/USD pair comes under renewed selling pressure on Wednesday and sinks to the lowest level since March 2020 during the mid-European session. The pair is currently trading around the 1.1425-1.1420 region and seems vulnerable to prolonging a nearly one-month-old descending trend.

The Bank of England policymakers, including Governor Andrew Bailey, testified before the Parliament's Treasury Committee this Wednesday and failed to reinforce bets for a more aggressive rate hike. This, in turn, is seen as a key factor weighing on the British pound and exerting downward pressure on the GBP/USD pair amid relentless US dollar buying.

The BoE MPC member Silvana Tenreyro noted that we are still to see the majority of the impact of the significant policy tightening already in place. Tenreyro added that a more gradual pace of tightening reduces the risk of overshooting. Adding to this, Governor Bailey said that more forceful bank rate moves to open the door for policy hold or reversal later.

Against the backdrop of a bleak outlook for the UK economy, the not-so-hawkish remarks might continue to undermine sterling. The USD, on the other hand, hits a fresh two-decade high and continues to draw support from firming expectations that the Fed will continue to tighten its monetary policy at a faster pace to curb stubbornly high inflationary pressures.

In fact, the markets are pricing in a greater chance of a supersized 75 bps rate hike at the upcoming FOMC policy meeting on September 20-21. This, along with the prevalent risk-off mood and worries about a deeper global economic downturn, should act as a tailwind for the safe-haven greenback and supports prospects for a further depreciating move for the GBP/USD pair.

Some follow-through selling below the March 2020 low, around the 1.1410 region, will reaffirm the negative bias and pave the way for deeper losses. In the absence of any major market-moving economic releases from the US, speeches by Fed officials will play a key role in influencing the USD price dynamics. Apart from this, the broader risk sentiment might also drive the USD demand and provide some meaningful impetus to the GBP/USD pair.

Technical levels to watch