GBP/USD bulls in charge and target a test of 1.3800

GBP/USD is currently trading at 1.3724, up 0.77% after rallying from a low of 1.3606 to score a high of 1.3725.

Risk sentiment across markets has picked up benefitting currencies correlated to risk such as sterling and weighing on the US dollar.

GBP had its worst week in two months last week due to worries surrounding the Delta coronavirus variant that has started to derail the global recovery potential.

However, Friday brought some relief to the market when sentiment shifted surrounding the prospects of a Federal Reserve taper announcement as soon as this week.

Dallas Federal Reserve President Robert Kaplan, among the US central bank's most forceful supporters for starting to reduce support for the economy, said on Friday he may need to adjust that view if the Delta variant of the coronavirus slows economic growth materially.

His comments removed a lot of anticipation surrounding the Jackson Hole and expectations of an imminent taper announcement, exposing the US dollar to a reduction in speculative positioning. 

If the economy plays out as he expects, he said, he'd still support announcing a reduction in the Fed's $120 billion in monthly asset purchases next month, and begin actually doing so in October.

The caveat, he said, is the highly contagious Delta variant.

It's "a good thing" there's still a month to watch it before the Fed's next policy-setting meeting, he said.
This led to an improvement in sentiment that has been reflected in equity markets, with stocks gaining across global markets on late Friday and Monday.

The dollar index, DXY, which measures its performance against a basket of six major currencies, fell 0.415% to 92.999.

Meanwhile, domestically, the pound strengthened despite survey data published showing Britain's post-lockdown economic rebound slowed sharply in August, as companies struggled with unprecedented shortages of staff and materials.

The IHS Markit/CIPS flash composite PMI dropped for the third month in a row, sliding to 55.3 from 59.2 in July - a sharper slowdown than economists had forecast.

There won’t be other market-moving releases in the UK until the growth/industrial production figures on 10 September.

GBP/USD technical analysis

The pound has corrected a significant portion of the previous slide, all the way to prior support in a strong 61.8% Fibonacci retracement:

However, the bar remains low for a downside continuation while below 1.3800/20 so long as DXY stays bid above 93.000 as bulls target weekly/monthly close above 93.500: