GBP/USD remains on the defensive below 1.1500 mark ahead of UK PM results

• GBP/USD drops to its lowest level since March 2020 and is pressured by a combination of factors.
• The UK’s gloomy economic outlook undermines the British pound amid a broad-based USD strength.
• Traders await the announcement of the UK Prime Minister amid relatively thin liquidity conditions.

The GBP/USD pair kicks off the new week on a weaker note and hits a fresh low since March 2020 during the early European session. Spot prices, however, manage to rebound a few pips, though remain on the defensive below the 1.1500 psychological mark.

The British pound continues to be weighed down by a bleak outlook for the UK economy and uncertainty over the economic policies of the next British Prime Minister. The recent surge in energy prices has raised concerns over the UK cost of living crisis and intensified fears of a deeper economic downturn. The worries were further fueled by the latest forecast from the British Chambers of Commerce (BCC), which expects the UK economy to record three consecutive quarters of contraction this year.

Apart from this, the underlying strong bullish sentiment surrounding the US dollar keeps exerting some downward pressure on the GBP/USD pair. As investors look past Friday's mixed US jobs report, firming expectations that the Fed will stick to its aggressive policy tightening path to tame inflation lifts the USD to a fresh two-decade high. In fact, the markets are currently pricing in a greater chance of a supersized 75 bps rate hike move at the upcoming FOMC policy meeting on September 20-21.

This, in turn, remain supportive of elevated US Treasury bond yields and continues to underpin the greenback. That said, signs of stability in the financial markets seem to act as a headwind for the safe-haven buck amid relatively thin trading volumes on the back of the Labor Day holiday in the US. Traders also seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the announcement of the next UK Prime Minister later this Monday at 11:30 am GMT.

Technical levels to watch