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Forex Market: GBP/USD hits a fresh one-month low as market caution, Fed taper signal expectations support US Dollar

GBP/USD retreated for a third straight trading day on Monday, while touching a fresh one-month low, as the US Dollar remained firm on investor expectations of the Federal Reserve moving a step closer towards asset purchase tapering this week.

Additionally, concerns that the eventual collapse of indebted developer China Evergrande could lead to a broader crisis triggered a sell-off in equity markets and also kept the US Dollar bid.

This week’s market focus will be the outcome from the Federal Reserve’s two-day policy meeting, to be concluded on Wednesday. Analysts largely expect the central bank to stick with its tapering plans this year, but to abstain from providing details or a timeline for at least one month.

“What the dollar bulls will be looking for is for the dot plot to show a 2022 lift-off,” analysts at OCBC Bank in Singapore said.

“This would represent an extension of the hawkish-Fed, dollar-positive narrative that had ran slightly out of steam by August.”

Meanwhile, 10-year US bond yields rose for a fourth consecutive week last week.

Several other central banks are due to set policies this week, including Bank of England, which is expected to keep policy settings without change. Yet, in case policy makers offer a hawkish tone or more MPC members call for bond-purchasing program tapering, the Sterling could appreciate.

As of 8:32 GMT on Monday GBP/USD was retreating 0.44% to trade at 1.3669, after earlier touching an intraday low of 1.3662. The latter has been the Forex pair’s weakest level since August 23rd (1.3607). The major currency pair has depreciated 0.55% so far in September, following another 1.08% loss in 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 -3.97 basis points (-0.0397%) as of 8:15 GMT on Monday, up from -6.2 basis points on September 17th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3754
R1 – 1.3787
R2 – 1.3846
R3 – 1.3879
R4 – 1.3912

S1 – 1.3696
S2 – 1.3663
S3 – 1.3605
S4 – 1.3546

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