GBP/USD recovered after dipping below the lower limit of the descending regression channel coming from December 9. Meanwhile, the Relative Strength Index (RSI) indicator on the 4-hour chart rose slightly above 30, suggesting that the pair's bearish bias remains intact after staging a technical correction from oversold levels.
On the downside, static support seems to have formed at 1.2250 ahead of 1.2200 (static level, round level) and 1.2140 (static level from November 2023). Looking north, first resistance could be spotted at 1.2350 (former support, static level) before 1.2400 (round level, mid-point of the descending channel).
After losing nearly 1% on Wednesday, GBP/USD extended its slide and touched its lowest level since November 2023 below 1.2250 in the early European session on Thursday. The pair remains deep in negative territory below 1.2300 despite recovering slightly in the last hour.
The broad-based US Dollar (USD) strength and a bout of selloff in British government bonds triggered a sharp decline in GBP/USD. The yield on the 10-year UK gilt climbed to its highest level in over 16 years and the yield on the 30-year reached its strongest level since 1998 early Thursday.
Potentially, a reason why is the technical break is more significant versus other jurisdictions. The UK is at highs of this cycle whereas in Europe and the US this isn't the case. We're in new uncharted territory.
On the other hand, the US Dollar (USD) benefited from the risk-averse market atmosphere and put additional weight on GBP/USD's shoulders. Citing four sources familiar with the matter, CNN reported on Wednesday that Trump is considering declaring a national economic emergency to allow for a new tariff program, reviving concerns over an aggressive tariff policy stoking inflation.
Stock markets in the US will remain closed and bond markets will close early on Thursday, in observance of a national day of mourning to honor the death of former President Jimmy Carter.
Later in the day, several Federal Reserve (Fed) officials are scheduled to deliver speeches. In case policymakers underline the need for a slowdown in the pace of rate cuts amid the uncertainty surrounding the inflation outlook, the USD is likely to preserve its strength. On Friday, the US Bureau of Labor Statistics will release the December jobs report, which will include Nonfarm Payrolls and Unemployment Rate figures.