GBP/USD slides to over three-week low, seems vulnerable below mid-1.3000s

• GBP/USD dropped to a fresh multi-week low on Friday amid the prevalent USD bullish sentiment.
• The Fed’s hawkish outlook, elevated US bond yields continued lending some support to the buck.
• The fundamental backdrop favours bearish traders and a slide towards challenging the YTD low.

The GBP/USD pair edged lower during the early European session and dropped to a fresh multi-week low, further below mid-1.3000s in the last hour.

Following the two-way/directionless price moves over the past two sessions, the GBP/USD pair witnessed some selling on Friday and was pressured by a stronger US dollar. Expectations that the Fed would tighten its monetary policy at a faster pace pushed the USD to its highest level since May 2020 and turned out to be a key factor that acted as a headwind for the major.

It is worth recalling that the March FOMC minutes released on Wednesday showed that policymakers were prepared to hike interest rates by 50 bps at upcoming meetings. Moreover, there was a general agreement about reducing the Fed's massive balance sheet to tighten financial conditions. This, along with elevated US Treasury bond yields, continued underpinning the USD.

The Fed's hawkish outlook, along with worries that the recent surge in commodity prices would further push consumer inflation higher, assisted the US bond yields to hold near the multi-year peak. Conversely, the Bank of England had softened its language over the need for future interest rate hikes. This further impressed bearish traders and exerted pressure on the GBP/USD pair.

The combination of factors supports prospects for a slide back towards challenging the YTD low, around the 1.3000 psychological mark. That said, the lack of strong follow-through selling warrants some caution for aggressive bearish traders amid absent relevant market-moving economic data. Nevertheless, the GBP/USD pair remains on track to end lower for the second successive week.

Technical levels to watch