Forex - GBP/USD trims gains, focus on Fed

The pound trimmed gains against the U.S. dollar on Monday, but remained supported as fresh uncertainty over whether the Federal Reserve will soon begin to taper its bond-buying program weighed on demand for the greenback. 

GBP/USD pulled away from 1.6072, the pair's highest since September 19, to hit 1.6031 during U.S. morning trade, still up 0.16%.

Cable was likely to find support at 1.5893, the low of September 18 and resistance at 1.6163, the high of September 18 and an eight-month high. 

The dollar found some support after New York Federal Reserve President William Dudley defended the central bank’s decision to keep its stimulus program unchanged last week, in comments on Monday.

Dudley said that adjustments to the Fed’s USD85 billion-a-month asset purchase program "need to be anchored in an assessment of how the economy is actually performing”. 

“The economy still needs the support of a very accommodative monetary policy,” Dudley added.

The Fed said last week that it wanted to see more evidence of a sustained economic recovery before it adjusted the scale of its bond buying program.

The decision surprised markets, which had been expecting a modest reduction to the scale of the bank’s bond buying program. 

Sterling was higher against the euro with EUR/GBP retreating 0.38%, to hit 0.8416. 

The euro came under pressure after Draghi said the European Central Bank is ready to launch a third round of Long Term Refinancing Operations if necessary. The comments came during testimony about the economy before the Committee on Economic and Monetary Affairs in Brussels. 

Earlier Monday, data showed that manufacturing output in the euro zone was weaker than expected this month, but this was offset by an improvement in service sector activity.

The preliminary reading of the euro zone manufacturing purchasing managers’ index fell to 51.1 in September from a final reading of 51.4 in August. Analysts had expected the index to inch up to 51.8.