GBP/USD struggles below 1.3400 mark, hangs near one-month low set on Thursday

• GBP/USD failed to preserve its modest intraday recovery gains to the 1.3415 region.
• The prevalent bullish sentiment surrounding the USD acted as a headwind for the pair.
• BoE rate hike bets might help limit any deeper losses for the major, at least for now.

The GBP/USD pair surrendered its modest intraday gains and retreated to the lower end of its daily trading range, around the 1.3370 region during the early European session.

The pair struggled to capitalize on its attempted recovery move and met with a fresh supply near the 1.3415 region on Friday amid the prevalent bullish sentiment surrounding the US dollar. In fact, the USD Index shot to the highest level since July 2020 amid expectations that the Fed will tighten its monetary policy at a faster pace than anticipated.

The markets have started pricing in the possibility of five quarter-point hikes by the end of 2022. Moreover, short-term interest rate futures imply a 20% risk that the first hike in March could be 50 basis points. The buck was also underpinned by Thursday's US Q4 GDP report, showing that the economy expanded by 6.9% annualized pace as against 5.5% expected.

On the other hand, the British pound was weighed down by growing demands for UK Prime Minister Boris Johnson's resignation over a series of lockdown parties in Downing Street. This was seen as another factor that acted as a headwind for the GBP/USD pair, though expectations that the Bank of England will hike interest rates help limit further losses.

From a technical perspective, the GBP/USD pair, so far, has managed to hold its neck above the overnight swing low, around the 1.3357 area, or the lowest level since December 23. This should now act as a key pivotal point for traders, which if broken decisively will set the stage for an extension of the recent slide witnessed over the past two weeks or so.

In the absence of any major market-moving data from the UK, the USD price dynamics will continue to play a key role in influencing the GBP/USD pair. Later during the early North American session, traders will take cues from the US economic releases – the Core Personal Consumption Expenditure Price Index and revised Michigan Consumer Sentiment Index for January.

Levels to watch