The GBP/USD pair is affected by a number of negative factors. Brexit news, British GDP data, and expectations of upcoming Fed and Bank of England's meetings exert strong downward pressure on the pound
On Monday morning, the pound renewed its monthly low against the US dollar. The GBP/USD pair fell sharply below the 1.2300 mark.
Sterling has been declining for the fourth successive session. Its sell-off is caused by several factors.
The most fundamental reason is the May US inflation report released on Friday. The overall consumer price index rose to 8.6% against the expected 8.3% in annual terms.
Another spike in US inflation raised a question about the Fed's further more aggressive measures to stifle price growth.
Notably, the US regulator's monetary policy meeting is scheduled for June 15.
Previously, the Fed was expected to raise its benchmark interest rate by half a percentage point this month. However, after the release of hot inflation data, economists fear that this figure could be increased by 75 basis points.
This scenario is currently most likely. The yield on the 10-year US Treasuries and the US dollar has risen dramatically amid such news.
As for the British pound, the situation is aggravated by the fact that the strengthening of the Fed's hawkish sentiment occurs ahead of the Bank of England's meeting.
The British regulator is due to announce its decision on interest rates on June 16. It is expected to raise interest rates for the fifth time in a row as part of its current tightening cycle.
Most experts are inclined to believe that the figure will increase from 1% to 1.25% which is the highest since January 2009.
Moreover, some analysts also think that the Bank of England will decide to take the risk of raising the interest rates immediately by 50 basis points to 1.5% amid soaring inflation.
Experts are confident that whatever the Bank of England's decision is, the pound will not benefit from it.
A minimum 25-basis-point move will increase the divergence between the Bank of England and Fed's monetary policy. Moreover, a 50-basis-point rate hike would increase the risk of a recession in the UK economy.
At the same time, fears of a slowdown in UK economic growth have increased significantly. The latest UK GDP data was published in the morning. The figure fell by 0.3% in April.
According to the above mentioned, the analysts expect the GBP/USD pair will continue and even strengthen its bearish trend. In the near future, it is likely to test the record low of 1.2155 since the start of the year.
Brexit news strengthens the gloomy outlook for sterling. Investors should focus on British Foreign Secretary Liz Truss's speech in the House of Commons.
On Monday, the politician will release details of the amendments to the Northern Ireland Protocol. If these changes are adopted, the EU will hit the UK economy hard by declaring a trade war on the country.