GBP/USD rises above 1.1300 amid renewed dollar weakness

• UK government's U-turn on tax cuts provided a boost to the British pound on Monday.
• The US Dollar Index turned negative on the day below 112.00.
• The dollar came under renewed selling pressure after ISM PMI data.

Following the sharp upsurge witnessed in the early European morning, the GBP/USD pair stayed in a consolidation phase near 1.1200 before gathering bullish momentum in the American session. The pair was last seen trading at its highest level in 10 days at 1.1310, rising 1.35% on a daily basis.

Reports suggesting that British Prime Minister Liz Truss and Finance Minister Kwasi Kwarteng would reverse a cut to the higher rate income tax caused UK gilt yields to fall sharply and provided a boost to the British pound at the beginning of the week. After Kwarteng confirmed the reports by saying "we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened," the pair held its ground despite the modest dollar strength.

In the second half of the day, the ISM Manufacturing PMI weighed on the dollar and opened the door for an extended rally in GBP/USD.

Although the headline PMI arrived above 50, the Employment Index fell to 48.7, revealing a contraction in manufacturing sector jobs ahead of the September Nonfarm Payrolls data on Friday. Additionally, the Prices Paid Index fell to 51.7 from 52.5 in August. Softening input inflation and declining employment in the sector caused investors to reassess the Fed's policy outlook with the CME Group FedWatch Tool's probability for a 75 basis points rate hike falling toward 50. Reflecting the broad-based dollar weakness, the US Dollar Index was last seen losing 0.4% on the day at 111.73.

Later in the session, Kansas Fed President Esther George and New York Fed President John Williams will be delivering speeches.

Technical levels to watch for