GBP/USD dives to over two-month lows, bears challenge 100-DMA near 1.3670

A sudden pickup in the USD demand dragged the GBP/USD pair to the 1.3670 region, or over two-month lows during the early European session.

As investors digested a stubbornly dovish Fed, the US dollar staged a solid rebound from over two-week lows amid a goodish pickup in the US Treasury bond yields. This, in turn, was seen as a key factor that prompted some aggressive selling around the GBP/USD pair during the first half of the trading action on Friday.

It is worth mentioning, that the Fed – in the latest FOMC meeting minutes on Wednesday – reiterated its commitment to extend monetary policy support until the recovery was more secure. Adding to this, Fed Chair Jerome Powell said on Thursday that the stance would only shift after a few consecutive months of positive data.

Separately, St. Louis Fed President James Bullard said that the central bank should not even discuss changes until there are clear signs that the pandemic is over. That said, investors remain convinced that a relatively faster US economic recovery could force the Fed to raise interest rates sooner rather than later.

The optimistic US economic outlook remained well supported by the impressive pace of coronavirus vaccinations and US President Joe Biden's infrastructure spending plan. This has been fueling speculations about an uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period.

The British pound was also pressured by concerns about a possible link between the AstraZeneca coronavirus vaccine and a rare blood clotting disorder. The UK's medical regulator issued a temporary ban on the vaccine for the below 30 age group and the trial on children has been paused, which could delay the UK government's plan to reopen the economy.

Apart from this, the latest leg of a sudden drop over the past hour or so could further be attributed to some technical selling below the 1.3700 round-figure mark. The GBP/USD pair, for now, seems to have found some support near 100-day SMA, which if broken will set the stage for an extension of this week's sharp pullback from levels beyond the 1.3900 mark.

Technical levels to watch