GBPUSD retreat from eight-month highs as British investors enjoying a bank holiday in the U.K. after strong gains on Friday session. A weak USD has sparked a rally in most G7 currencies after the shift in policy framework from the Fed announced by Chairman Jerome Powel in Jackson Hole.
Fed’s Policy Change Pressure USD
Fed shifts away from the strict inflation regulation and is moving into strengthening the U.S. employment. Federal Reserve will soon boost the economy with new dollars and plan to keep the low-interest rates environment for as long as needed for the unemployment to reach pre-coronavirus levels. The moves would increase the inflation and will put extra pressure to U.S. dollar.
Better than expected economic data from U.K. also helped GBPUSD to reach yearly highs, while the unemployment continues to question the economic recovery on the other side of the Atlantic. Bank of England (BOE) said that it would not tighten the monetary policy further until it has clear evidence that the inflation is picking up.
Investors ignore the deadlock in Brexit negotiations and rumours for a tax hike to big corporations in the upcoming U.K. budget. E.U. is accusing U.K. that Brexit negotiations are not advancing because of the U.K.’s unrealistic approach.
GBPUSD is 0.32% lower at 1.3308, in a healthy pullback from December 2019 highs. The technical picture is pointing to higher levels, but we might see slower advance towards the 1.34 mark.
In case of correction, the low from Friday at 1.3189 would provide immediate support. More bids would emerge at 1.3112 the low from August 26. If the bears break that level, the next target would be 1.3048 the low from August 24.
On the upside, resistance stands at 1.3369 today’s high. Next obstacle for GBPUSD would be met at 1.34 the high from December 16, 2019. A move above might challenge, 1.357 the top from December 13, 2019.