Ella 
GBP/USD traded in a tight range during the Asian session on Monday, consolidating recent losses to reach its lowest level since late March hit last week. GBP/USD is currently trading just below the mid-1.2200 level and appears vulnerable to extending the decline from the 1.3140 area (or the 15-month high hit on July 14).
The U.S. dollar is trading near its highest level in more than six months and continues to be strongly supported by the hawkish stance of the Federal Reserve (Fed), which in turn poses key headwinds for GBP/USD. The Fed stressed the need to keep interest rates higher for longer to push inflation back to its 2% target and boosted market bets that rates will rise by at least another 25 basis points by the end of the year. Additionally, the so-called “dot plot” points to just two rate cuts in 2024, compared with four previously expected.
This prospect has pushed the 10-year U.S. Treasury yield to its highest level since 2007, and coupled with overall weak market risk sentiment, continues to boost the safe-haven dollar. In addition, the unexpected suspension of interest rate hikes by the Bank of England last Thursday also caused the pound to weaken and was seen as a new factor that suppressed the pound/dollar. In fact, the Bank of England ended a run of 14 rate hikes following the recent deceleration in UK inflation.
The above fundamental backdrop appears to be making GBP/USD firmly bullish and suggests minimal downside resistance for GBP/USD. In other words, the daily relative strength indicator is still oversold and needs to be treated with caution. With no relevant macro data released from either the UK or the US, traders should proceed with caution and wait for a short-term consolidation or slight rebound before positioning for further GBP/USD losses.
