British Pound consolidates vs USD; bearish bias remains amid divergent Fed-BoE outlook

The GBP/USD pair consolidates above mid-1.3300s during the Asian session on Tuesday and remains within striking distance of its lowest level since July 30, touched last week. Moreover, the fundamental backdrop seems tilted in favor of bearish traders and suggests that the path of least resistance for spot prices is to the downside.

The US Dollar (USD) retains its bullish bias near the highest level since late July amid the hawkish Federal Reserve (Fed) and escalating Middle East tensions. In fact, the US central bank signaled at least one more hike this year after raising interest rates for the first time in over three years. This marks a significant divergence in comparison to the Bank of England's (BoE) cautious on-hold decision and gradual easing bias, which contributes to the British Pound's (GBP) relative underperformance and acts as a tailwind for the GBP/USD pair.

On the geopolitical front, Iran’s Islamic Revolutionary Guard Corps (IRGC) warned on Monday that any new military attack will trigger a response fought across a different geographical area and with different weapons. This further underpins the safe-haven Greenback and validates the near-term negative outlook for the GBP/USD pair. However, the recent pullback in oil prices eased inflationary concerns, leading to a further fall in US bond yields and capping the USD. Nevertheless, the fundamental backdrop seems tilted in favor of USD bulls.

Traders now look to speeches from influential FOMC members, which, along with further developments surrounding the Middle East crisis, will drive USD demand. Apart from this, the release of flash PMIs from the UK and the US, due on Wednesday, should provide some impetus to the GBP/USD pair. The focus, however, will remain glued to a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday.

GBP/USD daily chart

Technical Analysis

The GBP/USD pair retains a mildly bearish near-term bias beneath the 100-day Simple Moving Average (SMA) at 1.3435 and the 50.0% Fibonacci retracement at 1.3407. On the downside, initial support is aligned with the 61.8% Fibo. retracement at 1.3344, ahead of the 78.6% level at 1.3254 and the structural anchor near 1.3139.

On the topside, a close above the 50.0% retracement at 1.3407 would expose the 100-day SMA at 1.3435, with further resistance seen at the 38.2% level at 1.3471 and the 23.6% retracement at 1.3549.