GBP/USD pressured as USD rises and UK rate outlook weighs.

In-Depth: The GBP/USD pair experienced renewed selling pressure, slipping below the mid-1.2400s during the European session and approaching a three-week low. The US Dollar (USD) continued its upward trend for the third consecutive day, reaching a nearly two-month high, which weighed heavily on the major currency pair. Optimism surrounding the potential lifting of the US debt ceiling and expectations of a prolonged period of higher interest rates from the Federal Reserve (Fed) provided support to the Greenback.

US President Joe Biden and top congressional Republican Kevin McCarthy expressed their determination to reach a deal soon to raise the federal government's debt ceiling of $31.4 trillion. An agreement needs to be reached and passed by both chambers of Congress before the federal government faces a potential shortage of funds to meet its obligations by June 1. Furthermore, hawkish comments from several Fed officials pushed back against speculations of interest rate cuts later in the year, supporting elevated US Treasury bond yields and bolstering the US Dollar.

Conversely, the British Pound (GBP) was weighed down by expectations of fewer rate increases by the Bank of England (BoE) in the coming months to address inflation. This speculation was fueled by underwhelming UK jobs data released earlier in the week and less hawkish remarks from BoE Governor Andrew Bailey. During a speech at the British Chamber of Commerce Conference, Bailey stated that UK inflation is expected to decrease significantly in the upcoming months. However, he reiterated the BoE's commitment to raising interest rates to bring inflation back to the 2% target.

Considering the fundamental factors at play, the GBP/USD pair is currently biased towards further downside movement. Any attempted recovery could be viewed as an opportunity for bearish traders and may fizzle out quickly. Market participants are now closely monitoring the US economic docket, including Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales data. Additionally, speeches from influential FOMC members, developments in US bond yields, and progress in US debt-limit negotiations will drive USD demand and provide fresh impetus to the major currency pair. From a technical standpoint, the GBP/USD rebounded at the predicted 61.8% area and continues its bearish rally based on the identified AB=CD pattern. Our outlook remains bearish.

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