Federal Reserve officials aligned before Chair Powell’s dovish message.
The United States will publish the August PCE Price Index this week.
XAU/USD trades near fresh record highs, partially losing its bullish momentum but far from bearish.
Spot Gold traded as high as $2,634.74 a troy ounce on Monday, achieving yet another record high. XAU/USD currently hovers around $2,530, as the broad US Dollar weakness maintains the pair afloat. The Greenback found near-term demand throughout the first half of the day, but gains were modest, and the USD advance looked corrective.
It later suffered a setback as multiple Federal Reserve (Fed) officials publicly supported last week’s decision to trim rates by 50 basis points (bps) while hinting at more monetary loosening in the next few months. The dovish shift in policymakers’ tone did not impact Wall Street, as US indexes hover around their opening levels, not far from the highs posted last week.
Meanwhile, S&P Global released the preliminary estimates of the United States (US) September Purchasing Managers Indexes (PMIs), which showed business activity growth remained robust in the month. The Manufacturing PMI declined to 47 from the previous 47.9, missing the 48.5 anticipated by financial markets. On the other hand, the Services PMI posted 55.4, which is better than the 55.2 expected. Finally, the Composite PMI was reported at 54.4, slightly below the previous 54.6.
By the end of the week, the US will publish the August Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge. The data could hint at what the central bank may do next and whether aggressive rate cuts would become the norm.
XAU/USD short-term technical outlook
XAU/USD is up for a third consecutive day, and technical readings maintain the bullish case alive despite the easing momentum. The daily chart shows technical indicators are stabilizing within overbought readings while moving averages maintain their positive strength far below the current level. In fact, the 20 Simple Moving Average (SMA) stands at around $2,540, reflecting bulls’ strength in the last few weeks.
In the near term, and according to the 4-hour chart, some unconfirmed bearish divergences hint at a potential correction. Technical indicators pulled back from their recent highs with neutral-to-bearish slopes, supporting a near-term retracement. At the same time, XAU/USD keeps developing above bullish moving averages, with the 20 SMA accelerating north above the longer ones and acting as dynamic support at around $2,597.
I had been positioned for this previously, although I was focusing more on the idea of colder temperatures coming to the stage. So, we may have a spike, a pullback, a pretty significant pullback, and then that move again. Traders are starting to bring in the idea of those colder temperatures. So, this hurricane threat kind of all hits at the right time to just really get things going. Now, with that being said, I do think that you can’t chase it here. You also can’t do a huge position.
You have to be very cautious about overextending yourself. If we get a significant pullback, perhaps the hurricane comes to the Gulf of Mexico, nothing really happens. That might be your entry point. But again, as you know, you’ve been watching me here, I’m actually long via an ETF. So, while the gains are substantial here, and I may trend trim some of them, the reality is I’m not levered that much, so I don’t really care. The only way to play this market is swing trading with low leverage that I have found.
For a look at all of today’s economic events, check out our economic calendar.
The British Pound came under pressure on Friday morning after UK retail sales exceeded expectations.
However, a disappointing consumer sentiment survey suggests that the government’s pessimistic tone regarding the economy and national finances is having a chilling effect.
According to Forex trading, the GBP/EUR exchange rate rose to 1.1925, just three points away from its 2024 high, after the Office for National Statistics said UK retail sales volumes rose 1.0% on a monthly basis in August, doubling July’s figure and easily beating forecasts of 0.4% growth.
According to the economic calendar, the annual growth rate rose to 2.5% from 1.5% and beat expectations of 1.4%. Meanwhile, the strong reading justified the Bank of England’s decision on Thursday to adopt a cautious approach to cutting interest rates further and helped the GBP/USD exchange rate extend its march to the 1.3340 resistance.
With the latest figures, future risks lie in declining consumer confidence. The GfK Consumer Confidence survey – the country’s longest-running and most important survey of consumer sentiment – was also released on Friday. The survey reported a significant decline in confidence across all areas, with the main index falling by seven points. Clearly, consumer confidence will be important in determining whether the rise in retail sales can continue. Headwinds include the autumn budget, which could be a gloomy event with the government warning that it will need to raise taxes to improve its financial position.
Overall, the new UK government has been preparing the nation for a tough budget in October that will see tax increases and spending cuts. Messages from Prime Minister Keir Starmer and Chancellor Rachel Reeves have been pessimistic, and economists have warned that the government risks talking the economy down. Commenting on this, Matt Britzman, senior equities analyst at Hargreaves Lansdown, said: “Words matter, and the new government’s continued pessimistic tone about the economy and the upcoming budget could become a self-fulfilling prophecy.
Overall, the Bank of England’s decision to keep interest rates on hold on Thursday will disappoint consumers who had been hoping for lower rates, however, financial markets show that investors fully expect the next rate cut to come in November. Nevertheless, the pound is benefiting from the BoE’s decision to keep rates on hold, and strong retail sales figures are providing a fresh boost to buying interest ahead of the weekend. However, the strong performance could defy a consumer-led economic slowdown.
According to the stock trading platforms, UK shares fell at the end of trading, posting weekly losses. The FTSE 100 index of British shares fell 1.2% to close at 8,230 points on Friday, reversing strong gains the previous day, driven by a large interest rate cut by the Federal Reserve. Traders continued to digest policy decisions taken by central banks this week, including those from the Federal Reserve and the Bank of England, while assessing mixed economic data.
UK retail sales in August exceeded estimates, reaching their highest level in two years, but a survey revealed a sharp decline in consumer confidence for September. Among the biggest losers were shares of Spirax-Sarco Engineering (-4.8%), Frasers Group (-4.5%), and Next (-4%). Also, shares of Burberry fell 3.5% after being removed from the FTSE 100 index and after Jefferies downgraded the stock to “Underperform” from “Hold” and cut the target price to 490 pence from 800 pence. Over the week, the FTSE 100 index fell by 0.5%.
Technical forecasts for the GBP/USD pair today:
With the recent gains in the GBP/USD and the technical indicators on the daily chart moving towards strong overbought levels, the Sterling may face profit-taking. Technically, the nearest resistance levels to the recent performance are 1.3365, 1.3430, and 1.3500, respectively. On the other hand, on the same time frame, the currency pair has moved towards support levels of 1.3150 and 1.3000, which could end the current uptrend. Ultimately, we expect the GBP/USD to stabilize around the current performance until the market reacts to the reading of the US inflation data preferred by the Federal Reserve and statements by several bank officials throughout the week.
The price of platinum opened at $988.65 per ounce, as of 9 a.m. That’s up 1.20% from the previous day and up 0.09% from the beginning of the year.
The lowest trading price within the last day: $966.83 per ounce. The highest platinum spot price in the last 24 hours: $994.65 per ounce.
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Current platinum price
Platinum price chart
The chart below shows how the spot price of platinum is trending over the year.
Year to date, platinum is up 0.09%, as of 9 a.m. The 52-week high reached $1,049.10 on June 7, 2023, and the 52-week low dropped to $843.15 on Nov. 10, 2023.
The precious, silvery-colored metal is priced in U.S. dollars. This means that the fluctuations in the value of the U.S. dollar can impact its price.
The price of XPT/USD reflects the value of one ounce of platinum in U.S. dollars, and it is traded like traditional currency pairs. Because platinum trades occur globally, investors can also track the spot price of platinum in other currencies, such as XPT/EUR for euros and XPT/GBP for British pounds.
Factors that can influence the price of platinum include changes in demand, geopolitical events and tensions in major platinum-producing countries. Of course, investor opinion and speculation can also affect prices.
Precious metals spot prices
Platinum is one of four main precious metals investors can trade via physical bullion, exchange-traded products or futures contracts. Gold, silver and palladium spot prices are also updated 24/7 in various currencies.
Platinum vs. gold price
Currently, platinum trades at $988.65 per ounce, as of 9 a.m., compared to gold, which trades at $2,576.43 per ounce. Year to date, platinum prices are up by 0.09% and gold prices are up by 24.69%.
“Historically, platinum has often been more expensive than gold due to its relative scarcity and unique properties. However, the price of platinum can fluctuate in response to changing market conditions,” said John Bergquist, president of Elysium Financial.
Political instability and supply disruptions in major platinum-producing regions like South Africa and Russia affect prices.
The silvery metal also tends to be a less reliable store of value than gold.
While historically, platinum has been pricier than gold, that flip-flopped briefly in August 2011. When looking at the gold-to-platinum price ratio, platinum was priced above gold from January 2013 until December 2014. Since then, gold has more than doubled its value compared to platinum prices.
History of platinum prices
Like any metal, the price of platinum can be volatile. Various factors affect it, the most significant being supply and demand dynamics. Other factors, such as economic conditions, geopolitical events, and changes in industrial and investment demand, can also impact the price of platinum.
At the start of the new millennium, the precious metal’s spot price was around $420. Fast-forward over 20 years, and the current price of platinum has more than doubled.
The spot price soared to new heights, trading in February 2008 at around $2,200 per troy ounce. In November of that year, the price returned to less than $1,000.
Platinum’s spot price has fluctuated between around $800 to $1,400 for the past decade, hovering around the $1,000 threshold on average.
Platinum prices today remain historically low. Prices dropped as low as $623.50 in March 2020 during the COVID-19 pandemic. While prices have recovered, platinum is nowhere near its all-time high of $2,213.20, set on March 3, 2008.
Platinum futures
Futures contracts let investors speculate on the future price movements of an underlying asset like platinum.
These financial contracts represent an agreement between two parties to trade a set amount of platinum at a specified price at a future date. They can be settled by exchanging the physical commodity or cash in place of the commodity.
Futures contracts differ from spot prices in that futures contracts establish a future price whereas spot prices are for immediate delivery. These contracts can be fulfilled by trading the physical commodity or exchanging cash in place of the underlying asset. They are usually traded through an exchange.
Platinum as an investment
The automotive industry creates the highest demand for platinum. Platinum is a key component in manufacturing catalytic converters, which are responsible for reducing vehicle emissions.
In addition to the automotive industry, platinum is widely used in the industrial industry to create medical products, nitric acid and glass. As the demand for these products rises, so does the price of platinum.
It is anticipated that platinum will play an essential role in the development of hydrogen technology. Platinum is used to produce carbon-free hydrogen from renewable energy.
“If hydrogen-based power meets expectations in the coming decade, then one could expect a material demand tailwind in platinum,” said Stash Graham, managing director of Graham Capital Wealth Management.
Precious metals such as platinum, gold and silver have long been used to diversify an investment portfolio.
When choosing investments, it is crucial to consider potential drawbacks. While there may be an increase in the demand for platinum, other factors may throw a wrench in the investment benefits.
When considering an investment, it is essential to consider your current holdings and individual financial goals.
Platinum is rarer than both silver and gold, which could make it attractive to investors seeking a scarce metal. This practice helps protect other holdings, such as stocks, in an economic downturn. Investing in platinum can help balance inflation and economic uncertainties.
Frequently asked questions (FAQs)
Platinum pricing is set independently from gold and silver prices, yet there is a historical correlation between the prices of these metals. Although platinum is rarer than silver and gold, metals with industrial uses tend to fluctuate similarly.
The highest platinum price was $2,213 on March 3, 2008. This notable high can be attributed to critical supply issues in South Africa, the world’s largest platinum producer. Both geopolitical and economic factors played a role in this price hike during the recession.
An unexpected spike in services inflation complicated the outlook for BoE rate cuts.
Data revealed an unexpected 1% increase in UK retail sales.
The dollar rebounded against a weak yen on Friday.
The GBP/USD outlook shows a slight shift in sentiment as the pound pulls back from recent highs. The decline comes as the dollar broadly recovers after the Bank of Japan failed to support the market’s hawkish outlook.
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Sterling had a strong rally last week as data reduced bets for Bank of England rate cuts. The first report of the week on Wednesday revealed that inflation held steady at 2.2%. However, there was an unexpected spike in services inflation, complicating the outlook for rate cuts. Policymakers have remained cautious despite low headline inflation figures. Their focus remains on the services sector, where price pressures remain high.
The second major report came on Friday, showing an unexpected 1% increase in August retail sales. The UK economy has performed better than most expected in recent months. Therefore, the Bank of England has more room to pause before resuming rate cuts. Currently, market participants are pricing a 71% chance of a 25-bps BoE rate cut in November. However, this outlook might keep shifting with incoming data.
Meanwhile, the dollar plunged on Wednesday last week after the Fed implemented an unexpected 50-bps rate cut. It was an aggressive start to an easing cycle that will continue to hurt the greenback. Traders are betting on another such rate cut in November.
However, the dollar rebounded against a weak yen on Friday after a disappointing BoJ policy meeting. This strength spread across the board, affecting the pound. Still, fundamentals support more upside for GBP/USD.
On the technical side, the GBP/USD price is retreating after failing to sustain a move above the 1.3301 resistance level. Nevertheless, the bias is still bullish because the price trades above the 30-SMA, with the RSI above 50.
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GBP/USD has maintained a bullish trend since the price broke above the 30-SMA. It has made consistent higher highs and lows. However, the RSI has made a slight bearish divergence, indicating weaker momentum. Furthermore, price action shows bears are gaining strength after making an engulfing candlestick pattern.
Therefore, the price might soon challenge the SMA. A break below would indicate a reversal. Otherwise, the bullish trend will continue.
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Silver price slumps to near $30.50 after a strong recovery in the US Dollar.
Traders are split over whether the Fed will cut interest rates by 25 or 50 bps in November.
Investors will focus on the preliminary US PMI for September.
Silver price (XAG/USD) faces sharp selling pressure above the key resistance of $31.00 and drops to near $30.50 in Monday’s European session. The white metal drops sharply as the US Dollar (USD) gains ground even though market speculation for the Federal Reserve (Fed) to opt for a second consecutive interest rate cut by 50 basis points (bps) remains firm.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rose swiftly by 0.4% above 101.00. A decent recovery in the Greenback makes investment in precious metals, such as Silver, an expensive bet for investors.
The CME FedWatch tool shows that the probability of the Fed reducing interest rates by 50 bps to 4.25%-4.50% in November is close to 50%. For the remainder of the year, trades have priced in a 75-bps interest rate cut. On the contrary, Fed policymakers see the federal fund rate heading to 4.4% by the year-end.
Going forward, investors will focus on the United States (US) preliminary S&P Global Purchasing Managers’ Index (PMI) data for September, which will be published at 13:45 GMT. Economists estimate the Manufacturing PMI to have improved to 48.5 from 47.9 in August. However, a figure below the 50.0 threshold is considered a contraction. The Services PMI is expected to have expanded at a slower pace of 55.2 from the prior release of 55.7.
Silver technical analysis
Silver price trades in a Rising Channel chart formation, on a four-hour timeframe, in which the upper portion acts as resistance. Each pullback is considered a buying opportunity by market participants.
The white metal has dropped to near the 50-period Exponential Moving Average (EMA) near $30.36, suggesting an uncertainty ahead. However, the upside bias remains intact.
The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting a weakening of momentum.
Silver four-hour chart
(This story was corrected on September 23 at 11:39 GMT to say that the US Services PMI is expected to have expanded at a slower pace of 55.2 from the prior release of 55.7.)
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold’s. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold’s moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
The Japanese yen declined once more to over 144.40 yen against the US dollar on Friday, reversing earlier session gains, after Bank of Japan Governor Kazuo Ueda acknowledged “some weakness” in the economy, a slightly more dovish tone than previous statements.
However, Ueda maintained his forecast that the Japanese economy is steadily progressing towards a modest recovery, affirming that the central bank “will continue to adjust the degree of easing” if its economic and price forecasts are realized.
These comments came after the Bank of Japan kept its interest rate unchanged at 0.25% in a unanimous vote, in line with expectations. The latest economic data also showed that Japan’s core inflation accelerated to 2.8% in August from 2.7% in July, supporting the hawkish outlook for the Bank of Japan’s policy. Externally, the yen faced pressure from rising risk assets as the US Federal Reserve’s interest rate cut boosted global economic expectations.
Focusing on Japan this week, all eyes will be on the preliminary purchasing managers’ indices for September. Also, the minutes of the Bank of Japan’s latest policy decision for hints on the timing and size of potential interest rate increases that will remain in this cycle.
On another note, according to stock trading platforms, US stock markets on Wall Street closed the week on a more subdued note, as US stocks hovered near their all-time highs set during a global rally the previous day. The S&P 500 index fell 0.2% from its record high, and the Nasdaq Composite fell 0.4%. Meanwhile, the Dow Jones Industrial Average added 38 points, or 0.1%, to its all-time high. Also, FedEx shares had caused the market to decline by 15.2% after its fourth-quarter earnings and revenue fell short of analysts’ expectations. The company said that US customers sent fewer packages through its priority services, while it had to deal with higher Labor wages and other costs. Correspondingly, FedEx lowered its revenue growth forecast for the fiscal year. At the same time, Nike shares helped limit market losses, rising 6.8% after appointing Elliott Hill as its CEO.
Meanwhile, shares of Trump Media & Technology Group fell 7.8% as its largest shareholder, former President Donald Trump, won the freedom to sell his shares if he wanted. Decisively, Trump owns more than half of the $2.7 billion company behind the Truth Social platform. Nevertheless, Trump and other insiders in the company were unable to take advantage of this because a “lock-up agreement” prevented them from selling any of their shares. Before the lock-up period ended, Trump said he was not in a hurry to sell.
TMTG shares have fallen to less than $14 from over $60 in March, and have had a volatile journey there. Over the past six months, the stock has often swung by at least 5% a day, up or down. Similarly, shares of homebuilder Lennar fell 5.3% after presenting a mixed earnings report. Its fourth-quarter earnings exceeded expectations. Also, it said it earned less profit for every $100 of home sales, and expects this margin to remain flat in the current quarter.
Overall, conditions may be ripe for improvement for homebuilders, nevertheless. The US Federal Reserve earlier this week cut its benchmark interest rate for the first time in more than four years, and more are likely to come. Thus, that could make mortgages more expensive for homebuyers. The cut closed the door on a race where the Fed kept its benchmark interest rate at a two-decade high in hopes of slowing the US economy enough to kill high inflation. Now that inflation has come down from its peak two summers ago, Fed Chair Jerome Powell said the Fed can focus more on keeping the job market strong and the economy out of recession.
Generally, the Fed remains under pressure because hiring has slowed under the weight of high interest rates. Meanwhile, some critics say the central bank has waited too long to cut rates and may have hurt the economy. Also, Critics say that the U.S. stock market may be overheating because of the belief that the Fed will succeed in achieving what once seemed impossible: bringing inflation down to 2% without causing a recession.
USD/JPY Technical Analysis and Expectations Today:
Based on the daily chart attached, the USD/JPY pair is trying to form an ascending channel that reflects the current bearish outlook. For this to succeed, bulls will need to move the pair towards the resistance levels of 147.90 and 150.00, respectively. Conversely, the psychological level of 140.00 will remain the most important to expect a further collapse. The USD/JPY will remain subject to signals from global central bank officials, as well as investors’ risk appetite.
Recent trades of the EUR/USD pair have been predominantly bullish, with bulls successfully driving the pair towards the resistance level of 1.1190, closing the previous week near these gains.
Recently, the upward rebound of the pair came in response to investors’ reactions to recent decisions by global central banks.
Decisively, this week will feature statements from several US Federal Reserve officials that will further clarify the bank’s recent decisions and its future plans for upcoming meetings.
According to stock trading platforms, the US Dow Jones Industrial Average closed at a new record high. US stocks closed a volatile session mixed on Friday, with uncertainty prevailing following the previous session’s surge, which was fuelled by the US Federal Reserve’s interest rate cut. The S&P 500 and Nasdaq indices declined by 0.2% and 0.3%, respectively. Meanwhile, the Dow Jones added 36 points, extending its previous day’s record close. Federal Reserve policymakers expressed differing views on inflation, with Governor Christopher Waller supporting a half-point cut in US interest rates due to favourable inflation data. Presently, Governor Michelle Bowman, the lone dissenter, warned that it could signal a premature victory over inflation.
Among stocks, FedEx shares declined by 15.2% after posting weak earnings and lowering revenue forecasts. Meanwhile, Nike shares rose by 6.9% after announcing Elliott Hill as its new CEO. Despite the decline, stocks recorded a winning week, with the S&P 500 rising 1.3%, the Nasdaq advancing 2.1%, and the Dow Jones adding 0.8%.
Similarly, European stocks closed the week sharply lower. on Friday, European stocks closed sharply lower and erasing the sharp gains made in the previous session, as markets continued to assess the outlook for financial conditions this year following a series of global central bank decisions last week. The Bank of Japan kept its interest rate unchanged but indicated that policy normalization would continue, while the People’s Bank of China kept interest rates unchanged despite some bets on cuts amid the easing provided by the Federal Reserve. Automakers led the losses in the session, led by a 6.7% decline in Mercedes shares after the company lowered its full-year financial forecast due to the rapid deterioration of its business in China. Stellantis, Volkswagen, and BMW shares fell more than 3%. Meanwhile, ASML shares fell 4.2%, completely erasing its previous session’s gains, setting the pace for technology stocks in the currency bloc. Shares of LVMH, Hermes, and Kering also declined by more than 3% each amid a Jefferies warning about luxury. On the other hand, banks avoided a sharp decline.
What will affect the Euro/Dollar this week?
According to the economic calendar, in the United States, all eyes will be on the Personal Consumption Expenditure (PCE) inflation report. Both the core and headline PCE price indices are expected to rise by 0.2%, matching the previous month. Moreover, Personal income is expected to rise by 0.4%, slightly higher than the previous 0.3%. Also, consumer spending is likely to grow at a slower pace of 0.3%. S&P Global’s preliminary purchasing managers’ indices are expected to show a slightly slower contraction in the manufacturing sector while service sector growth slows.
At the same time, traders will focus on the appearances of several officials, including Fed Chairman Powell and Treasury Secretary Yellen at the 2024 Treasury Market Conference hosted by the Federal Reserve Bank of New York. Other key indicators to watch include final Q2 GDP growth figures, durable goods orders, CB Consumer Confidence, regional PMIs including the Chicago Fed National Activity Index, Richmond Fed Manufacturing Index, Kansas Fed Manufacturing Index, FHFA Housing Index, S&P/Case-Shiller Home Price Index, new and pending home sales, and final Michigan Consumer Sentiment figures.
In Europe, preliminary purchasing managers’ indices estimates will provide an update on September’s economic performance. The Eurozone and Germany are expected to see continued contraction in the manufacturing sector and slowing growth in services. Furthermore, the German business climate index is expected to decline, while consumer confidence may rise. Also, Germany will release unemployment figures, along with loans to households and businesses and businesses and consumer sentiment in the Eurozone; preliminary inflation figures for France and Spain; and business and consumer confidence in Italy.
EUR/USD Technical analysis and forecast:
According to the performance on the daily chart attached, the price of the Euro against the US Dollar EUR/USD is on an upward channel path and crossing the resistance barrier of 1.1200 will enhance the bulls’ control. Thus, it prepares the pair to move towards stronger upward levels. Technically, the next of which will be 1.1265, 1.1330 and 1.1400 respectively, all of which will strengthen the technical indicators.
Rabobank forecasts that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.2050 on a 6-month view.
Nomura sees scope for short-term Pound gains but with the risk of a significant retreat to 1.1630 by the end of 2024.
Investment banks in general are wary over the UK fiscal outlook which could undermine the economy and trigger faster interest rate cuts.
A sharp retreat in consumer confidence for September could be a harbinger of more vulnerable conditions.
The Bank of England (BoE) held interest rates at 5.00% which was in line with consensus forecasts.
There was an 8-1 vote for the decision with Dhingra dissenting and calling for a further cut in rates.
The Pound has maintained its yield advantage over the Euro and GBP/EUR hit 2-year highs just above 1.1920 after the decision.
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According to Nomura; “We see a much stronger likelihood of just a single 25bp cut this year, in November, and as such think GBP can find support an interest rate perspective, as easing proceeds more slowly than the market is pricing.”
It added; “for now, we continue to favour GBP upside trades.”
ING commented; “Sterling’s rally on yesterday’s Bank of England communication looks fully justified. UK short-dated yields rose relative to their eurozone counterparts as the BoE stuck to the new script of ‘gradual’ easing.”
It sees scope for a GBP/EUR challenge on 1.20 in the near term.
Goldman Sachs expects structural Pound demand will remain firm; “UK equities have been more insulated in recent periods of risk-off, which is one of the reasons our portfolio strategists have turned bullish and are looking for additional inflows.”
Goldman added; “we think the currency should still benefit from a coordinated easing cycle where the US avoids recession, and particularly like being long on crosses.”
HSBC expects the Pound will run out of steam; “It is less clear what can boost GBP’s strong run further, especially when some positioning metrics suggest it is a very crowded long.”
HSBC also sees structural vulnerability; “Delving deeper into the UK’s BoP data paints a picture whereby the currency has been propped up by other investment inflows rather than sturdier forms of capital.”
Nomura does see barriers to sustained Pound gains; “GBP long positioning is much reduced from its peak in mid-July, although it has been building again in recent weeks. This, as well as the new Labour government’s first budget in October, are potential risk factors that could curb our enthusiasm for GBP.”
According to MUFG; “we still believe that by the November MPC meeting we will have had more evidence of underlying inflation pressures easing and wage growth slowing further.”
It sees potential for cuts in November and December.
Rabobank commented; “Looking ahead, we see scope that GBP can continue its slow burning recovery. On the back of a more aggressive pace of Fed easing, we see scope for EUR/GBP to reach 0.83 on a 6-month view. (1.2050 for GBP/EUR).
It did issue a caveat; “That said, the budget may complicate this outlook. Not only may it sour investor sentiment, but a hefty round of tax hikes could impact market expectations regarding the pace of BoE easing.”
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Foreign exchange analysts at HSBC are forecasting GBP/USD to weaken to 1.25 by September 2025.
Structural and cyclical developments will be crucial for the GBP/USD performance.
Interest rate decisions have dominated markets during the week and GBP/USD hit 30-month highs above 1.33.
The Federal Reserve cut interest rates by 50 basis points to 5.00% at its policy meeting. Ahead of the decision, markets priced in around a 60% chance of this move and around 40% of a smaller 25 basis-point cut.
Chair Powell justified the larger move with comments that risk to the inflation and employment mandates were now balanced.
The Fed committee projections also indicated that rates would be cut further before the end of 2024 and the stance was generally dovish.
Socgen considers that dollar vulnerability has increased; “cracks are now appearing in the case for US exceptionalism, exacerbated by an aggressive Federal Reserve and strong positioning in US assets.”
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In contrast, HSBC sees scope for the dollar to recover; “the baseline scenario calls for modest Fed easing, which has not been definitively USD-negative in the past, while more sizeable rate cuts on the back of rising recessionary concerns would likely play to the USD’s advantage.”
HSBC summarised; “We are not breaking up with our strong USD view. The building blocks remain in place for it to recover.”
In contrast, the Bank of England (BoE) held interest rates at 5.00% at the policy meeting, in line with market expectations.
The BoE considered that a steady approach was needed in cutting interest rates.
The Fed rate cut undermined the dollar while the contrasting policy approach has underpinned the Pound in global markets.
A key question is whether this contrast will be sustained.
MUFG commented; “The BoE’s more hawkish policy announcement today will create some near-term uncertainty over the prospect of back-to-back cuts at the final two meetings of the year.”
The bank does expect that the narrative will change, especially with fiscal risks.
According to the bank; “we see some danger here of the current GBP outperformance starting to fade as the BoE softens the messaging on gradualism and indicates that conditions are falling into place for the potential of faster rate cuts ahead.
MUFG added; “Carry is also turning less favourable as a trading strategy which we expect to continue and that will likely weigh on GBP performance further ahead.”
ING expects an eventual shift, but added; “That may take some time, however, and in the meantime, sterling can continue to do well.
Structural elements will also be extremely important over the medium term.
Bank of America (BoA) sees robust underlying Pound demand and added; “GBP is over 10% undervalued versus USD and supports our underlying bullish view on the pound and further gains over the medium-term following the recent range-break.”
HSBC, however, is also sceptical that the Pound will maintain its bullish stance; “GBP bulls need two things to hold true. Risk appetite needs to remain resilient, and the BoE cannot begin to out-dove the market. Neither seems an especially compelling assumption, even if they are holding true so far.”
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