GBP/USD struggles below 1.3100 mark, seems vulnerable amid worsening Ukraine crisis

• GBP/USD drifted into negative territory for the fourth straight day amid the cautious market mood.
• The Russia-Ukraine crisis, stagflation fears acted as a tailwind for the USD and capped intraday gains.
• BoE rate hike expectations held back bears from placing fresh bets and limit the downside, for now.

The GBP/USD pair struggled to capitalize on its modest intraday bounce and was last seen trading below the 1.3100 mark, or the lowest level since November 2020.

Following an uptick to the 1.3130-35 area during the European session, the GBP/USD pair met with a fresh supply on Tuesday and turned lower for the fourth successive day. The worsening situation in Ukraine overshadowed the early optimism led by reports that the European Union (EU) may consider massive joint bond sales to finance energy and defence. This was evident from modest decline in the equity markets, which assisted the safe-haven US dollar to pare its intraday losses and exerted some downward pressure on the major.

Moreover, investors remain concerned about the economic fallout from Russia's invasion of Ukraine. Adding to this, the recent monster gains in commodity prices have been fueling fears about an inflation shock in the global economy, raising the risk of stagflation. This might continue to weigh on the global risk sentiment, which along with a sharp rise in the US Treasury bond yields, should act as a tailwind for the greenback. The fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the downside.

That said, expectations that the Bank of England (BoE) would go ahead with hiking rates at its March meeting could lend support to the British pound. This could help limit losses for the GBP/USD pair amid slightly oversold conditions on the daily chart. In the absence of any major market-moving economic releases, the focus will remain on fresh developments surrounding the Russia-Ukraine saga. Apart from this, the US bond yields will influence the USD price dynamics and produce some short-term trading opportunities around the GBP/USD pair.

Technical levels to watch