GBP/USD surged to highs not seen in eight and a half months during early Asian trade on Monday, as the US Dollar was on track for its fourth consecutive month of decline against peers following the Federal Reserve Bank’s policy framework shift introduced last week.
In a speech at the Jackson Hole virtual symposium last week Federal Reserve Chair Jerome Powell said the central bank would aim to achieve an average inflation of 2%, thus, allowing the rate to run moderately above or below that objective for some time to support economic recovery and employment. This means interest rates will probably remain at lower levels for longer despite a rise in inflation.
“Even if U.S. central bankers are likely to be pleased about the interpretation of their measures, it is not good news for the dollar,” Commerzbank analysts wrote in an investor note.
“If one expects the domestic purchasing power of the dollar to be eroded more quickly (as that is what inflation is) it is difficult to assume that it will maintain its purchasing power on the FX market in the long run,” they added.
The US Dollar was set to register its worst August performance against a basket of six major currencies in five years, while being down 1.21% so far.
As of 11:04 GMT on Monday GBP/USD was edging down 0.20% to trade at 1.3321, after earlier touching an intraday high at 1.3369, or its strongest level since December 16th 2019 (1.3422). The major pair is on track to register its third straight month of gains in August, while being up 1.86%.
With Monday’s economic calendar not offering much in terms of macro data and UK markets closed for the Summer bank holiday, Pound traders will now set their focus on tomorrow’s reports on UK mortgage approvals for July and the final Manufacturing Purchasing Managers’ Index for August.
Bond Yield Spread
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 19.6 basis points (0.196%) as of 10:15 GMT on Monday, down from 19.8 basis points on August 28th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 1.3297
R1 – 1.3408
R2 – 1.3467
R3 – 1.3578
R4 – 1.3689
S1 – 1.3237
S2 – 1.3127
S3 – 1.3067
S4 – 1.3007