GBP/USD Forecast: Plunges Below 1.3500 amid Risk-off Sentiment

• In response to safe-haven demand for the US dollar, the GBP/USD fell to near a four-week low.
• The Russian invasion of Ukraine has unnerved investors and triggered a sell-off of stocks.
• The weaker US dollar helped limit the pair’s losses on Bank of England rate hike bets due to falling US bond yields.

The GBP/USD pair forecast remains strongly bearish as the risk sentiment deteriorates amid escalating Russia-Ukraine conflict. As a result, the GBP/USD pair held its proposed tone ahead of the European session despite recovering a few pips from a more than three-week low earlier this Thursday. Over the day, the pair traded just below the psychological 1.3500, down almost 0.40%.

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In early trading on Thursday, the GBP/USD pair staged a sell-off after rebounding from the 1.3620 area on Wednesday, leading to an increase in demand for the US dollar. A new wave of risk-off trading has been triggered by Russia’s invasion of Ukraine, as evidenced by the recent sell-off in stock markets. Accordingly, the dollar’s relative safe-haven status was enhanced, putting downward pressure on the major currency.

Moreover, NATO confirmed that Russian troops had entered Ukraine through Crimea, as reported. Reports also indicated that Russian troops were attacking the Ukraine-Belarus border. The Ukrainian border guards also reported that the shelling was coming from Crimea. Thus, investors remained on their toes and continued to support traditional safe-haven assets, including the US dollar.

However, the falling yields on US Treasury securities discourage aggressive USD bets. Investors may have abandoned more aggressive Fed policy expectations in response to recent geopolitical events. In combination with the flight to safety across the globe, this has caused US bond yields to fall sharply and so far, held back further dollar gains.

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In addition, the rising interest rates of the Bank of England acted as a tailwind for the pound sterling if interest rates were to rise further. The decline in the GBP/USD pair was further limited by this factor. However, as long as the market remains at the center of the Ukrainian situation, a significant recovery still seems unlikely. The Russian-Ukrainian saga will increase demand for the dollar as a safe haven and create volatility around the GBP/USD pair.

GBP/USD price technical forecast: Due to an upside correction

The GBP/USD price has posted five consecutive down bars. The decline of around 150 pips may find a pause around the 1.3460 area, an earlier support level. However, the close of the recent 4-hour bar will further clarify the situation. Upside correction may trigger if the bar closes off the highs, near middle, or highs. Meanwhile, the 1.3500 level holds importance as a pivot point. As long as the price stays below the level, the pair is expected to stay bearish and visit the 1.3400 area.