GBP/USD sees downside below 1.2240 as investors turn cautious on US-China tensions

• GBP/USD is likely to shift below 1.2240 as the market mood sours on escalating US-China tensions.
• The Taiwanese economy has observed China’s military activity around the median line of the Taiwan strait.
• A slump in UK’s overall demand may force the BOE to sound less hawkish.

The GBP/USD pair has corrected gradually to near 1.2240 in early London after printing after failing to tap Monday’s high at 1.2293. The cable is likely to display losses if it drops below the immediate support of 1.2240 as market sentiment is turning jittery on the escalation US-China tensions ahead of the arrival of US House of State Nancy Pelosi in Taiwan.

Some military activity by Chinese warplanes has been observed around the median line of the Taiwan strait, as per Reuters. Also, China’s General Administration of Customs suddenly banned the import of more than 100 food products from Taiwan. The happening of an aforementioned event may cause serious damage to the country’s food industry, agriculture, and fisheries, per Chinese media outlets.

Broadly, investors are focusing on the interest rate decision by the Bank of England (BOE), which is due on Thursday. As per the market consensus, BOE Governor Andrew Bailey will elevate the interest rates by 25 basis points (bps).

A less-hawkish commentary from the BOE will keep the pound bulls on tenterhooks. Average Hourly Earnings have remained lower in the UK area, which resulted in a slump in Retail Sales, and also the downbeat employment data are not supporting the BOE for a higher rate hike unhesitatingly.

On the dollar front, Wednesday’s US Institute of Supply Management (ISM) Services PMI data will hog the limelight. A preliminary estimate for the economic data is 53.5, significantly lower than the prior release of 55.3. The US ISM Services New Orders Index data will be worth watching as US techs have lowered their guidance for the rest of the year.