GBP/USD struggles near two-week low, just above mid-1.2100s ahead of central bank speakers

• GBP/USD turned lower for the third straight day and dropped to a nearly two-week low.
• Hawkish Fed expectations and the cautious mood offered support to the safe-haven USD.
• The downside seems cushioned as the focus remains on Fed Chair Powell and BoE’s Bailey.

The GBP/USD pair prolonged this week's retracement slide from the 1.2330-1.2335 region and edged lower for the third successive day on Wednesday. The downward trajectory dragged spot prices to a nearly two-week low, closer to mid-1.2100s during the first part of the European session, though lacked follow-through selling.

The market sentiment remains fragile amid concerns that a more aggressive move by major central banks to curb soaring inflation would pose challenges to global economic growth. This assisted the US dollar to capitalize on the previous day's strong move up and gain some follow-through traction, which, in turn, exerted some downward pressure on the GBP/USD pair.

The British pound was further weighed down by Brexit woes and expectations that the Bank of England would opt for a more gradual approach towards raising interest rates. It is worth recalling that the UK House of Commons on Monday voted in favour of a controversial bill that would unilaterally overturn part of Britain's divorce deal from the EU agreed in 2020.

The latest development raised the risk of fresh tensions with the EU amid the cost of living crisis in the UK and growing recession fears. This might continue to undermine sterling and supports prospects for a further near-term depreciating move for the GBP/USD pair. That said, retreating US bond yields might cap the USD and help limit any deeper losses, at least for now.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the key event risk. Fed Chair Jerome Powell and BoE Governor Andrew Bailey are due to speak at the ECB forum in Sintra. Investors will look for cues about the central bank's policy tightening path before determining the next leg of a directional move for the GBP/USD pair.

Technical levels to watch