GBP/USD continues heading south, approaches 1.3500 area

• GBP/USD dives 1.16% on the day and approaches 1.3500.
• US dollar strength and concerns about the UK economy hit the pound.
• Below 1.3500, then the pair might aim to YTD low at 1.3455.

The sterling has been going through its worst session in the last months on Tuesday. The GBP/USD has plummeted about 1.16% so far today reaching levels in the vicinity of 1.3520 for the first time since mid-January.

Strong USD, surging gas prices hit the pound

The pound is dropping hard on Tuesday against a stronger US dollar. The greenback's demand has been boosted by the solid rally on US bond yields, triggered by the Federal Reserve’s signals towards the end of the accommodative policy adopted on the back of the COVID-19 crisis.

Furthermore, the surging gas prices and the fuel shortages caused by Brexit restrictions in the UK, are spurring concerns about the prospects of fragile economic growth and surging inflation and are spooking investors away from the GBP.

GBP/USD nearing YTD low at 1.3455

From a technical point of view, a further decline below the intra-day low at 1.3525 might send the pair towards 1.3455 (January 11 low) and 1.3434 (December 29 low).

On the upside, with the RSI Index at oversold levels on hourly and daily charts, the pair might show some recovery attempts from 1.3525 lows. In that sense, a GBP rebound past 1.3600 (August 24 and September 22 lows) might ease selling pressure on the pair and open the path towards 1.3730 (September 27 high) and 1.3750 (September 23 high).

Technical levels to watch