GBP/USD slides below 200 DMA support, seems vulnerable near its lowest level since January

• GBP/USD continues losing round for the third straight day and slides below the 200-day SMA.
• Expectations that the BoE’s rate-hiking cycle is nearing the end continue to weigh on the GBP.
• Bets for additional rate hikes by the Fed boost the USD and contribute to the ongoing decline.

The GBP/USD pair remains under heavy selling pressure for the third straight day on Friday and drops to its lowest level since January 6 during the first half of the European session. The pair currently trades around the 1.1930-1.1925 region, just below the very important 200-day SMA, and seems vulnerable to decline further.

The British Pound continues to be weighed down by expectations that the Bank of England's (BoE) current policy-tightening cycle might be nearing the end. The speculations were fueled by softer-than-expected UK consumer inflation figures released on Tuesday, which seem to have eased pressure on the UK central bank to deliver aggressive rate hikes going forward. This, along with strong follow-through US Dollar buying, is seen dragging the GBP/USD pair lower on the last day of the week.

Growing acceptance that the Federal Reserve will stick to its hawkish stance in the wake of stubbornly high inflation lifts the USD to a fresh six-week high. In fact, the markets are now pricing in at least a 25 bps lift-off at each of the next two FOMC policy meetings in March and May. This, in turn, pushes the yield on the benchmark 10-year US government bond to the highest level since late December. Apart from this, the prevalent risk-off mood further underpins the safe-haven buck.

The GBP/USD pair, meanwhile, fails to benefit from the better-than-expected UK Retail Sales figures for January. This, along with a sustained break below the 1.2000 psychological mark and a technically significant 200-day SMA, suggests that the path of least resistance for spot prices is to the downside. Hence, some follow-through weakness back towards retesting the YTD low, around the 1.1840 area set in January, looks like a distinct possibility in the absence of any relevant US macro data.

Technical levels to watch