GBP/USD back in negative territory, challenges key support

• US dollar remains firm as US yields continue to rise.
• GBP/USD unable to recover, challenges the 1.3050 area.
• Risk aversion also weighs on GBP/USD, Dow Jones falls by 0.72%.

The GBP/USD reversed after hitting 1.3106, and during the American session printed a fresh daily low at 1.3051. It is testing the critical support of 1.3050, moving with a bearish bias amid a stronger US dollar across the board.

Greenback up, Treasuries down

More comments from Fed official, plus the recent FOMC minutes, point to a more aggressive policy. James Bullard, St. Louis Fed President, called on Thursday for more rapid rate hikes to curb inflation. Data released on Thursday, showed US initial jobless claims dropped more than expected to 166K, the lowest since 1968.

The DXY bounced and is back in positive ground for the day supported by higher US yields. The 10-year stands at 2.63% and the 30-year at 2.68%. Both reached new multi-year highs on Thursday. At the same time, the Dow Jones drops by 0.62% and the S&P 500 falls 0.47%.

Short-term outlook

Risks remain tilted to the downside for GBP/USD after begin unable to hold above 1.3100. The crucial area around 1.3050 is being challenged since Wednesday. A recovery above 1.3100 could alleviate the pressure and above 1.3180 the pound should gain momentum.

“Sterling remains heavy just below $1.31 after having an outside down day earlier this week.  We still look for an eventual test of last month’s cycle low near $1.30.  After that is the November 2020 low near $1.2855 and then the September 2020 low near $1.2675.  Between the likely return of risk-off impulses and the even more hawkish Fed outlook for tightening, we believe the dollar uptrend remains intact”, wrote analysts at BBH.

Technical levels