GBP/USD reversed early European session gains amid rising U.S. Treasury yields, falling from its Tuesday high at 1.28 to new session lows at 1.2719 and probing the daily cloud base at 1.2726, which has supported cable recently and could open the way to further losses.

A close below the daily cloud would put Friday's low at 1.2680 and 100-DMA support at 1.2634 in sharper focus.

If Fed Chair Jerome Powell's Jackson Hole comments Friday are taken as less-dovish, GBP/USD may slip below the August 14 low at 1.2617, putting the 200-DMA at 1.2389 in view.

Recent GBP/USD weakness has come amid falling UK inflation, which has tempered BoE rate expectations.
Despite diminishing inflation, price growth remains significantly above the BoE's 2% target, and rate futures are pricing a further 75 bp of hikes by May 2024, while U.S. SOFR futures predict a 50% chance for a 25bp hike in November 2023.

Though playing defense recently in the face of less-dovish Fed expectations, GBP/USD should find support from the persistent view of higher UK rates 0#SON3: for longer, especially with U.S. rate cuts expected 0#SRA: well before the UK.

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