GBP/USD plummets to three-week low, eyes 1.2400 amid broad-based USD strength

• GBP/USD drifts lower for the second straight day and dives to a three-week low on Wednesday.
• Speculations for fewer BoE rate hikes undermine the GBP and weigh amid sustained USD buying.
• The fundamental/technical setup supports prospects for an extension of the downward trajectory. 

The GBP/USD pair adds to the previous day's losses and remains under heavy selling pressure for the second successive day on Wednesday. The downward trajectory remains uninterrupted through the first half of the European session and drags spot prices to a three-week low, around the 1.2420 region in the last hour.

The British Pound continues to be undermined by rather unimpressive UK monthly jobs data released on Tuesday, which fueled speculations that fewer rate increases by the Bank of England (BoE) will be needed in the coming months to bring down inflation. This, along with some follow-through US Dollar (USD) buying, aggravates the bearish pressure surrounding the GBP/USD pair and contributes to the steep intraday decline.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, jumps to a nearly two-month high and draws support from a combination of factors. The overnight hawkish comments by Cleveland Federal Reserve (Fed) President Loretta Mester reaffirmed expectations that the US central bank will keep interest rates higher for longer. Apart from this, worries about a global economic slowdown benefits the safe-haven buck.

The softer Chinese macro data released on Tuesday pointed to a wobbly post-COVID recovery in the world's second-largest economy and fueled recession fears. This comes on the back of a standoff to raise the federal government's borrowing limit and drives some haven flows towards the Greenback. That said, a modest bounce in the US equity futures, along with a downtick in the US Treasury bond yields, might cap the USD.

Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the downside. Even from a technical perspective, last week's breakdown through the lower end of over a one-month-old ascending trend channel favours bearish traders and supports prospects for a further near-term depreciating move towards the next relevant support near the 1.2375-1.2370 region.

Technical levels to watch