The pound sterling (GBP) edged lower on Monday, easing toward 1.3480 against the US dollar (USD) after peaking at 1.3544 on Friday. The retreat comes as markets consolidate strong gains fueled by Federal Reserve Chair Jerome Powell’s dovish remarks at the Jackson Hole Symposium.
Powell surprised investors by signaling openness to loosening policy, a shift that sharply boosted risk appetite and pressured the Greenback. Ahead of his speech, markets had expected the Fed to maintain a “wait and see” stance.
The US dollar index (DXY) slumped to 97.60 on Friday, its lowest in nearly four weeks, while 10-year US Treasury yields fell to 4.24%. At the time of writing, the DXY has clawed back to around 98.00.
Trading in sterling is expected to be subdued through Monday with UK markets closed for the Summer Bank Holiday.
Powell shifts tone as labor market risks grow
Powell underscored that policy is “in restrictive territory” and acknowledged that shifting risks could justify an adjustment in stance. He flagged the labor market as a growing area of concern:
“Downside risks to employment are rising, and if those risks materialize, they can do so quickly,” he warned.
The dovish tone surprised traders who had anticipated a stronger defense of current restrictive policy, particularly as tariff risks cloud the inflation outlook. However, Powell downplayed the threat, noting that tariff-driven price pressures were unlikely to create a lasting inflation dynamic.
Markets are now firmly pricing a rate cut at the Fed’s September meeting, with the CME FedWatch tool showing heightened confidence following Powell’s remarks.
UK outlook clouded by structural challenges
Bank of England Governor Andrew Bailey also spoke at Jackson Hole, stressing the “acute challenges” facing the UK economy. Bailey highlighted persistent weakness in labor force participation since the pandemic and warned that aging demographics will continue to weigh on supply:
“Ageing is not going to turn around in the foreseeable future,” he said.
These structural headwinds add to pressure on the UK economy even as sterling benefits from the weaker dollar backdrop.
Technical outlook: GBP/USD forming bullish reversal
Sterling trades firmly above 1.3500 to start the week, with the near-term trend turning bullish after reclaiming the 20-day exponential moving average (EMA) near 1.3466.
The GBP/USD pair is shaping an inverse head-and-shoulders pattern, often a precursor to bullish reversal moves. The neckline is situated around 1.3580.
The 14-day relative strength index (RSI) remains compressed in the 40–60 band, indicating reduced volatility ahead of a potential breakout.
On the downside, support is seen at the August 11 low of 1.3400. Resistance to the upside stands near 1.3790, the July 1 high, which marks the next key target for sterling bulls.
