GBP/USD bears remain in control, pair slumps under 1.2500 as dollar rally continues

• GBP/USD bears remain in control and the pair has now fallen below 1.2500, as the rampant buck continues its surge.
• The pair has now fallen over 4.5% in the last six session, which also reflects growing pessimism about UK growth.

After some nascent signs of stabilisation on Wednesday, the GBP/USD bulls are fully back in control on Thursday and have most recently pushed the pair below the 1.2500 level for the first time since June 2020 and on towards 1.2450. At current levels near 1.2470, the pair is trading with losses of slightly more than 0.5% on the day and is on course to post a sixth successive day of losses during which time it has dropped more than 4.5% from close to 1.3100.

The US dollar continues to strengthen across the board amid a combination of safe-haven demand within the currency space, as well as demand for yield with the Fed expected to raise interest rates at a more aggressive pace in the coming quarters compared to most of its G10 counterparts. That includes versus the BoE, which is expected to raise interest rates by 25 bps again next week, though some analysts have warned may signal a slowdown in the pace of rate hikes ahead, as concerns about the health of the UK economy grow.

Recent data relating to consumer health (last week’s March Retail Sales report and this week’s April CBI Distributive Trades survey) suggest the current severe cost-of-living squeeze, the worst in the UK in decades, is weighing heavily on consumption. Aside from USD strength, growing pessimism about the UK economic and monetary policy tightening outlook has been a key driver of GBP/USD’s recent pullback.

Some technicians are warning that the recent move in the pair is looking a little overstretched, and there could soon be a modest positioning-related pullback in the rampant US dollar. But the prospect for a lasting rebound in GBP/USD doesn’t look great right now. In the immediate future, traders will be watching the release of US Q1 GDP and weekly jobless claims data at 1330BST ahead of the release of US March Core PCE inflation on Friday.