GBP Bears Retain Control Amid Fed-BoE Divergence

The British Pound (GBP) continues to struggle against the US Dollar (USD), trading near its lowest level since early July. The pair is stuck in a mildly negative bias for the fourth straight day, hovering around the 1.3230-1.3225 region during the Asian session on Thursday.

The fundamental backdrop suggests that the path of least resistance for spot prices remains to the downside. This is due to the divergence between the Federal Reserve (Fed) and the Bank of England's (BoE) monetary policies. The Fed's more hawkish stance, with firming expectations for another interest rate hike, has lifted the US Dollar to a nearly two-week high.

The latest S&P Global report showed that US business activity accelerated for a fourth straight month in September, registering the fastest pace of growth since July 2021. This has kept the yield on the benchmark 10-year US Treasury close to its highest level since 2007, acting as a tailwind for the Greenback.

The mixed UK business activity report published on Wednesday has kept GBP bulls on the sidelines, contributing to the weaker tone surrounding the GBP/USD pair. The divergent Fed-BoE outlook validates the near-term negative outlook for the currency pair and backs the case for an extension of the recent downtrend.