Forex Market: GBP/USD rangebound in light trade, dollar hovers above two-week lows after Fed Chair Powell’s remarks

GBP/USD remained stuck within a narrow range in light trade on Monday, as the US Dollar hovered just above a two-week low after the Federal Reserve laid out a slower-than-anticipated path to interest rate increases.

In a speech at the Jackson Hole symposium on Friday Fed Chair Jerome Powell said that the central bank’s tapering could start this year, but however, it would not directly indicate higher interest rates, because rate hiking would require the economy to pass a substantially more rigorous test.

“Powell was vague on the timing of tapering, and his reiteration that it is separate from a decision to raise rates was read to imply that there’d be a gap,” ANZ analysts wrote in an investor note.

“That has, in turn, seen the market take a Goldilocks view of the Fed – stimulus will be reduced, but not so quickly as to snuff out the recovery.”

Against a basket of six major peers, the US Dollar was mostly stable on Monday, in proximity to a two-week low of 92.595. The US currency has retreated 0.4% since Powell’s remarks last week.

Monday (August 30th) marks the Summer bank holiday in the United Kingdom, while trade volumes are expected to remain light during the European session.

Market players now turn their focus to Friday’s US employment numbers for more clues on Fed’s tapering timeline. A consensus of analyst estimates points to 728,000 new jobs added in all sectors of US economy except the farming industry in August.

“Together with COVID trends, Friday’s U.S. non-farm payrolls will make or break the case for announcing tapering at the (Fed’s) September meeting,” Kim Mundy, an analyst at Commonwealth Bank of Australia, was quoted as saying by Reuters.

“We consider another 800,000 jobs should be enough to announce tapering. We expect the dollar to regain some lost ground this week while market participants are still worried COVID will slow the world economy,” Mundy added.

As of 9:03 GMT on Monday GBP/USD was inching up 0.02% to trade at 1.3760, while moving within a daily range of 1.3749-1.3775. Last week the Forex pair climbed as high as 1.3781, which has been its strongest level since August 18th (1.3786). The major currency pair has retreated 1.06% so far in August, following a 0.55% gain in July.

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 9.91 basis points (0.0991%) as of 8:15 GMT on Monday, down from 10.9 basis points on August 27th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3739
R1 – 1.3799
R2 – 1.3840
R3 – 1.3900
R4 – 1.3959

S1 – 1.3698
S2 – 1.3638
S3 – 1.3597
S4 – 1.3555