Sterling rallied on Friday as Fed Chair Jerome Powell clung to his transitory inflation narrative in his Jackson Hole speech, leaving markets to call into question tapering beginning soon and potentially delaying views of rate normalization, leaving a potential opening for cable bulls.
Cable pulled off pre-Powell lows at 1.3709 hit before shooting up to 1.3781 after he began speaking.
GBP/USD early U.S. lows were set after another cadre of Fed members, including Cleveland Fed President Loretta Mester, Philadelphia Fed President Patrick Harker and Atlanta Fed President Raphael Bostic indicated their desire to begin tapering sooner rather than later, some going as far as to posit completing the asset purchase taper by H2 2022.
For GBP/USD, Powell's dovish lean on taper may provide short-term relief for sterling bulls as they focus on the BoE's own plans to remove accommodation.
While Powell appears reluctant to begin to taper, he has said inflation has met the test of substantial further progress and while there has been clear progress toward maximum employment.
With taper still on the table by year-end 2021, GBP/USD strength may be short-lived.
However, comments by Powell and other Fed members de-linking taper with rate hikes may provide a boost down the road should U.S.-UK rate spreads diverge as the UK begins to hike rates in H1 2022.
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