GBP/USD dives to fresh weekly low, eyes 1.0500 amid broad-based USD strength

• A combination of factors prompts aggressive selling around GBP/USD on the last day of the week.
• The dismal UK macro data weigh on sterling and exert pressure amid resurgent USD demand.
• Aggressive Fed rate hike bets continue to push the US bond yields higher and underpin the buck.
• Diminishing odds for a full 100 bps BoE rate hike in November support prospects for further losses.

The GBP/USD pair continues losing ground through the early North American session and dives to a fresh weekly low, around the 1.1060-1.1065 region in the last hour.

The sentiment surrounding the British pound remains bearish amid growing worries about a deeper economic downturn and the cost-of-living crisis. The fears were further fueled by Friday’s disappointing release of the UK Retail Sales figures, which suggests that consumers are feeling the pinch of high inflation.

Apart from this, the relentless US dollar buying exerts additional downward pressure on the GBP/USD pair and contributes to the ongoing depreciating move. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, rallies back closer to the monthly high and is supported by a combination of factors.

The continuous rise in the US Treasury bond yields, bolstered by hawkish Fed expectations, turns out to be a key factor pushing the greenback higher. The overnight hawkish remarks by Philadelphia Fed President Patrick Harker reaffirmed bets for another supersized rate hike in November. This, in turn, lifts the yield on the benchmark 10-year US government bond to its highest level since the 2008 financial crisis.

This, along with a weaker risk tone, underpins the safe-haven buck. This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the downside amid diminishing odds for a full 100 bps rate increase by the Bank of England in November. Hence, a subsequent decline, back towards the 1.1000 psychological mark, remains a distinct possibility.

Technical levels to watch