GBP/USD bounces off multi-week lows, finds some support near mid-1.3600s

• GBP/USD dropped to near three-week lows during the early part of the trading action on Monday.
• Brexit jitters weighed on the British pound and exerted some pressure amid a modest USD strength.
• Investors now seemed reluctant to place aggressive bets heading into the key central bank meetings.

The GBP/USD pair witnessed some selling during the early European session and dropped to near three-week lows in the last hour, albeit quickly recovered a few pips thereafter. The pair was last seen trading with only modest intraday losses, around the 1.3665-70 region.

Following a brief consolidation through the first half of the trading action on Monday, the GBP/USD pair met with a fresh supply and was weighed down by a combination of factors. The ongoing dispute over the post-Brexit fishing rights between the UK and France, along with a row over the Northern Ireland Protocol acted as a headwind for the British pound.

In the latest development, France seized a British boat last week and the UK threatened to undertake retaliatory action. On Sunday, the UK Prime Minister Boris Johnson and French President Emmanuel Macron met to ease the tension, though remain at loggerheads. Apart from this, a modest US dollar strength exerted some pressure on the GBP/USD pair.

The USD stood tall near two-and-half-week tops amid growing acceptance that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations were further fueled by Friday's release of the Core PCE Price Index – the Fed's preferred inflation gauge – that held steady near 30-year highs in September.

That said, expectations for an imminent rate hike by the Bank of England helped limit any deeper losses and assisted the GBP/USD pair to find some support near mid-1.3600s. Investors also seemed reluctant to place aggressive bets heading into this week's key central bank events, the FOMC policy meeting ending on Wednesday and the BoE decision on Thursday.

Hence, it will be prudent to wait for some follow-through selling before traders start positioning for an extension of last week's rejection slide from the 1.3830-35 heavy supply zone. Market participants now look forward to the final UK Manufacturing PMI. Apart from this, the US ISM Manufacturing PMI might provide some impetus to the GBP/USD pair.

Technical levels to watch