GBP/USD drops to fresh daily low, closer to mid-1.1900s amid resurgent USD demand

• GBP/USD witnessed a dramatic intraday turnaround from a three-week high touched on Tuesday.
• The risk-off mood, recession fears revived demand for the safe-haven USD and exerted pressure.
• The UK political drama undermined the British pound and contributed to the intraday pullback.

The GBP/USD pair is seen extending its intraday retracement slide from a three-week top touched earlier this Tuesday and continued losing ground through the mid-European session. The downward trajectory dragged spot prices to a fresh daily low, around the 1.1970-1.1965 region in the last hour.

Investors remain concerned about a possible global recession, which was evident from a generally weaker tone around the equity markets. This assisted the safe-haven US dollar to stage a goodish rebound from the vicinity of a multi-week low touched the previous day, which, in turn, exerted downward pressure on the GBP/USD pair.

Furthermore, UK politics was seen as another factor that added to negative sentiment surrounding the British pound and further contributed to the pair's intraday turnaround. The combination of factors, to a larger extent, overshadowed the prospects for a 50 bps rate hike move by the Bank of England at the upcoming meeting in August.

The global flight to safety, meanwhile, triggered a fresh leg down in the US Treasury bond yields, which might cap gains for the USD and offer some support to the GBP/USD pair. Traders might also refrain from placing aggressive bets ahead of the highly-anticipated FOMC policy decision on Wednesday and heavyweight US macro data.

A rather busy week in terms of important US economic releases kick starts with the Conference Board's Consumer Confidence Index on Tuesday. The focus, however, would remain on the outcome of a two-day FOMC meeting. The Fed is expected to hike interest rates by another 75 bps and leave the door open for further policy tightening.

This week's US economic docket also features the release of Durable Goods Orders on Wednesday and the Advance Q2 GDP report on Thursday. Apart from this, the Personal Consumption Expenditures (PCE report)  - the Fed's preferred inflation gauge - due on Friday will influence the USD and provide a fresh impetus to the GBP/USD pair.

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