- GBP/USD witnessed heavy selling for the third successive day and dropped to multi-week lows.
- Hawkish Fed expectations and the risk-off impulse in the markets boosted the safe-haven USD.
- The FOMC decision should provide a fresh directional impetus ahead of the BoE on Thursday.
The GBP/USD pair continued losing ground through the first half of the European session and dropped to near one-month lows, around the 1.3660 region in the last hour.
The pair extended last week's retracement slide from levels just above the 1.3900 mark and witnessed heavy follow-through selling for the third successive session on Monday. This also marked the fourth day of a negative move in the previous five and was exclusively sponsored by a broad-based US dollar strength.
The US dollar continued drawing support from firming market expectations the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. This was evident from the recent spike in the US Treasury bond yields, which continued acting as a tailwind for the USD and dragged the GBP/USD pair lower.
Apart from this, the risk-off impulse in the market provided an additional boost to the safe-haven greenback. Investors remain worried about the fast-spreading Delta variant and a global economic slowdown. This, along with concerns about the health of property giant China Evergrande Group, took its toll on the risk sentiment.
With the latest leg down, the GBP/USD pair has now erased a major part of its strong recovery from August monthly swing lows, around the 1.3600 mark. The latter should now act as a key pivotal point for traders ahead of this week's key central bank event risks – the FOMC on Wednesday and the BoE decision on Thursday.
Investors will keep a close eye on the outcome of a two-day FOMC meeting starting on Tuesday for clues about the likely timing of when the Fed would start tapering its bond purchases. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the GBP/USD pair.
Technical levels to watch
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