GBP/USD fades a bullish spike to YTD tops, back below 1.3200 mark
- GBP/USD rallied to fresh YTD tops after Powell announced a new approach to inflation.
- Some aggressive USD short-covering prompted led to a sharp fall of around 125 pips.
The GBP/USD pair faded an intraday bullish spike to fresh YTD tops and refreshed daily lows, around the 1.3160 region in the last hour.
The pair caught some aggressive bids during the early North American session in reaction to the Fed Chair Jerome Powell's dovish comments at the Jackson Hole Symposium. In his prepared remarks, Powell announced a shift to average inflation targeting.
Under the new monetary policy strategy, the Fed would let inflation run above its current 2% inflation target to make up for years of undershooting it. This means that the Fed could keep rates lower for longer, which weighed heavily on the US dollar.
In addition to the inflation change, Powell made a strong emphasis on the jobs sector and placed employment before inflation. He signalled that the Fed will seek to ensure that employment does not fall short of its maximum level.
However, a turnaround in the US Treasury bond yields prompted some aggressive USD short-covering move. This, in turn, was seen as one of the key factors behind the GBP/USD pair's slump of around 125 pips from intraday swing highs to the 1.3285 region.
It will now be interesting to see if the pair is able to attract any buying at lower levels or bulls opt to lighten their positions further. Nevertheless, the 1.3100 mark remains a key pivotal point, which should help determine the near-term trajectory for the GBP/USD pair.
Technical levels to watch