GBP/USD rose to eight-month highs on Summers decision

British pound jumped to the highest point in eight months against the US dollar on Monday, as Lawrence Summers withdrew from the contest to govern the Federal Reserve Bank, while he would put bank’s policy course of holding down borrowing costs to a halt, which bolstered wide risk rally.

GBP/USD soared to a session high at 1.5957 at 3:50 GMT, also the pairs highest point since January 18th, after which consolidation followed at 1.5932, still up by 0.36% for the day. Support was likely to be found at 1.5850, while resistance was to be encountered at January 18th high, 1.6003.

The greenback was largely losing ground against peers, after it became clear that one of the candidates for the post of Fed Chairman, Lawrence Summers left the contest. Summers, was one of the three names that US President Barack Obama had mentioned as possible successors of Bernanke, whose term as Chairman ends on January 31st. Yellen, the current Fed vice chairman, was also on Obama’s candidate list along with Donald Kohn, a former Fed vice chairman, the President said.

“There’s been a selloff in the dollar,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London, cited by Bloomberg. “Of the two main candidates, Yellen was seen as being a continuation of Bernanke and it was thought Summers would have been a change. The pound is approaching the key psychological level of $1.60.”

Federal Reserves two-day meeting on policy was in investors focus. It is expected that the bank will consider a reduction of scale of its stimulus program at its meeting this week.

Meanwhile, the pound was steady against the euro, with EUR/GBP cross dipping 0.03% to trade at 0.8379 at 9:29 GMT. The sterling has appreciated 6.9% during the past six months, or the best performing currency among the 10 developed-nation currencies, tracked by Bloomberg Correlation-Weighted Indexes. US dollar has gained 0.7%, while the euro has advanced 3.2%.