GBP/USD plummets to two-week low amid stronger USD, hangs near mid-1.1200s ahead of BoE

• GBP/USD dives to over a one-week low on Thursday amid strong follow-through USD buying.
• The Fed’s hawkish outlook pushes the US bond yields higher and continues to boost the buck.
• Technical selling below key support levels aggravates the bearish pressure ahead of the BoE.

The GBP/USD pair attracts aggressive intraday selling near the 1.1420 region on Thursday and dives to a one-and-half-week low during the first half of the European session. The downward trajectory drags spot prices to a nearly two-week low, around the 1.1255 region, and is sponsored by strong follow-through US dollar buying interest.

The Federal Reserve stuck to a more hawkish stance on Wednesday and indicated that it will continue to raise interest rates to combat stubbornly high inflation. In the post-meeting press conference, Fed Chair Jerome Powell said that it was premature to discuss a pause in the rate-hiking cycle and that the terminal rate will still be higher than anticipated. The prospects for further policy tightening by the US central bank trigger a fresh leg up in the US Treasury bond yields and boost demand for the greenback.

Apart from this, the prevalent cautious market mood offers additional support to the safe-haven buck and contributes to the offered tone surrounding the GBP/USD pair. Meanwhile, the latest leg down could further be attributed to some technical selling below the Asian session low, around the 1.1375 region. A subsequent break through the 1.1350 support, or the 200-period SMA on the 4-hour chart, and the 1.1300 mark could be seen as a fresh trigger for bearish traders. This, in turn, supports prospects for further losses.

That said, investors might refrain from placing aggressive bets and prefer to wait for the Bank of England policy decision, scheduled to be announced at 12:00 GMT. The UK central bank is expected to hike interest rates by 75 bps. Apart from this, the focus will be on the latest Economic projections and BoE Governor Andrew Bailey’s comments at the post-meeting press conference, which will influence the British pound.

Later during the early North American session, traders will take cues from the US ISM Services PMI. Apart from this, the US bond yields and the broader risk sentiment will drive the USD demand. This might further contribute to producing short-term trading opportunities around the GBP/USD pair. Nevertheless, the technical setup suggests that the path of least resistance for spot prices is to the downside.

Technical levels to watch