GBP/USD holds above 1.2200 ahead of UK GDP, seems vulnerable near one-week low

• GBP/USD consolidates its recent losses to the weekly low amid a bullish US Dollar.
• Reviving bets for one more Fed rate hike and a softer risk tone underpin the buck.
• Expectations that the BoE will start cutting rates in 2024 weigh on the British Pound.
• The downside remains cushioned as traders await the release of the UK Q3 GDP print.

The GBP/USD pair enters a bearish consolidation phase on Friday and oscillates in a narrow band, around the 1.2220-1.2225 area, just above a one-week low touched during the Asian session.

The US Dollar (USD) manages to preserve the overnight gains inspired by Federal Reserve (Fed) Chair Jerome Powell's remarks and turns out to be a key factor acting as a headwind for the GBP/USD pair. Speaking at an International Monetary Fund event, Powell said that they are not confident that they have achieved a “stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 per cent over time.

This comes on the back of the recent hawkish comments by several Fed officials and lifted expectations that the US central bank could tighten its monetary policy further. Apart from this, a weak auction of 30-year Treasury bonds continues to push yields higher across all maturities and underpins the buck. Apart from this, a generally weaker tone around the equity markets is seen as another factor benefitting the safe-haven Greenback.

The British Pound (GBP), on the other hand, is weighed down by a bleak outlook for the UK economy and firming expectations that the Bank of England (BoE) will soon start cutting interest rates. In fact, BoE's Chief Economist Huw Pill said earlier this week that the upside risks to an excessive slowdown are high and added that the current market pricing for a first-rate cut in August 2024 does not seem totally unreasonable.

The downside for the GBP/USD pair, however, remains cushioned as traders prefer to wait for the release of the Preliminary UK Q3 GDP report before placing fresh directional bets. Against the backdrop of the aforementioned bearish fundamental backdrop, even a slight disappointment from the UK GDP print will be enough to prompt fresh selling around the GBP/USD pair and pave the way for an extension of the weekly downtrend.

Later during the early North American session, traders will take cues from the release of the Michigan Consumer Sentiment Index. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair. Nevertheless, spot prices remain on track to register weekly losses and seem vulnerable to slide further.

Technical levels to watch