• The UK labor market showed resilience, with jobless claims plunging.

• US data showed higher-than-expected consumer and producer prices.

• Experts believe the US central bank will cut rates by 25 bps.

The GBP/USD weekly forecast supports a bullish trend as the FOMC meeting could lead to further weakness for the greenback.

Ups and downs of GBP/USD

The GBP/USD pair had a bullish week after a mix of UK and US economic reports. Notably, the UK labor market showed resilience, with jobless claims plunging. Meanwhile, the economy stagnated, with no growth, indicating a weaker-than-expected recovery. 

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On the other hand, US data showed higher-than-expected consumer and producer prices, reducing the likelihood of a super-sized rate cut. Consequently, the dollar rose. However, this changed late on Thursday after reports indicated that a 50 bps rate cut was a close call. The dollar dropped, allowing the pound to close on a bullish candle.

Next week’s key events for GBP/USD

Next week, high-impact UK events will include the consumer inflation and retail sales reports and the Bank of England policy meeting. Meanwhile, in the US, the market will focus on the FOMC meeting and retail sales data. 

Experts believe the US central bank will cut rates by 25 bps. However, there is still uncertainty regarding this, as some expect a more significant cut. Therefore, there might be a lot of volatility in the markets on Wednesday. Meanwhile, the Bank of England might keep rates unchanged owing to recent better-than-expected economic data. However, this outlook might change if inflation eases more than expected.

GBP/USD weekly technical forecast: Bulls resurface at solid support zone

On the technical side, the GBP/USD price is on a developed bullish trend, with higher highs and higher lows. At the same time, the price has traded mostly above the 22-SMA, a sign that bulls are in the lead. Meanwhile, the RSI has traded in bullish territory, touching the overbought region several times. 

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The uptrend recently reached the 1.3200 critical resistance level, but the price failed to sustain a move above it. Consequently, bears took charge, triggering a pullback to the 22-SMA support. The SMA coincided with the 1.3000 psychological level and the 0.382 Fib, creating a solid support zone. The price has made a strong bullish candle that shows it might bounce higher to retest the 1.3200 level. A higher high will strengthen the bullish bias. 

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• During my daily analysis of the GBP/USD pair, I see that we are bouncing a bit, and it does look like we are ready to go going higher.
• The 1.30 level underneath is a large, round, psychologically significant figure, and an area that is backed up by the 50-Day EMA overall.
• Ultimately, the market pulling back the way it has is a sign that perhaps we are starting to see a little bit of value offered in this currency pair, and breaking above the 1.31 level could bring in more buying pressure as we continue to see a lot of momentum jump back into this market.

All things being equal, it’s worth noting that the Bank of England is probably going to be cutting rates, but it seems like most people are out there focusing on the Federal Reserve, and the fact that we are more likely than not going to continue to cut rates in an aggressive manner, at least as far as the market is concerned, and therefore it’s likely that we will continue to see a lot of traders trying to get short of the US dollar in general. Whether or not that actually pans out for the longer term, the reality is that the momentum is with the British pound at the moment.

Central banks around the world are racing to the bottom

Central banks around the world are racing to the bottom as far as interest rates are concerned, so to be a bit of an interesting situation to trade, mainly due to the fact that it comes down to the destruction of their own currencies, as the market will try to price all of that in. All things being equal, this is a market that I think continues to see the US dollar in its crosshairs, but if we do get some type of massive “risk off move”, this will send the US dollar much higher against most currencies, including this one. As things stand right now though, there’s nothing on the chart that suggests that we are going to do so.

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• The dollar fell due to renewed bets for a 50 bps September Fed rate cut.

• Several Bank of Japan policymakers drummed up support for more rate hikes.

• Investors will focus on the FOMC and BoJ policy meetings.

The USD/JPY weekly forecast indicates a potential collapse if the Fed cuts by 50-bps and the Bank of Japan delivers a hawkish meeting.

Ups and downs of USD/JPY

USD/JPY has fallen and closed on a bearish candle in the past week. This came as the dollar collapsed while the yen strengthened. The dollar fell due to renewed bets for a 50 bps rate cut towards the end of the week. Initially, inflation reports had pointed to a smaller cut. 

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On the other hand, the yen rallied as several Bank of Japan policymakers drummed up support for more rate hikes.

Next week’s key events for USD/JPY 

Next week, investors will focus on the FOMC policy meeting and retail sales data from the US. At the same time, the Bank of Japan will hold its policy meeting on Friday. Investors have waited for the September Fed meeting for a long time. The Fed will likely pivot at this meeting, implementing its first rate cut.

However, investors are unsure whether this will be 25 or 50 bps. A small rate cut could boost the dollar as it would precede a gradual pace for easing. On the other hand, a large rate cut would sink the greenback.

Meanwhile, the Bank of Japan might maintain rates for now. However, economists are pricing another rate hike before the year ends. 

USD/JPY weekly technical forecast: Bullish divergence near 140.07 

On the technical side, the USD/JPY price has made a new low in the downtrend after breaking below the 144.00 support level. Bears have remained in charge since the price broke below the 22/SMA, and the RSI dipped below 50. Since then, the price has declined steeply and paused near the 140.07 support level. 

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However, bears have weakened with time, and the price started consolidating near the 22-SMA. At the same time, the RSI has made a bullish divergence, indicating fading bearish momentum. Therefore, the tides might soon change. If bears fail to breach the 140.07 support, the price might reverse to challenge the 22-SMA and the 144.00 level.

A break above the SMA would indicate a shift in sentiment. On the other hand, if the SMA holds firm, the downtrend might continue.

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STORY LINK Pound to Euro Exchange Rate Today: GBP Lower as UK GDP Misses Forecasts

The Pound Euro (GBP/EUR) exchange rate edged lower on Wednesday following the UK’s latest GDP release.

At the time of writing GBP/EUR was trading at €1.1847, down approximately 0.2% from Wednesday’s opening rate.

The Pound (GBP) faced a downturn following the release of the UK’s GDP figures on Wednesday.

Contrary to the anticipated growth of 0.2%, the economy showed no growth in July, deviating from the previous month’s 0.2% expansion.

Additionally, July’s industrial output in Britain saw a decline of 0.8%, contrary to the expected increase of 0.3%. Manufacturing output also declined by 1%, falling short of the forecasted 0.2% rise.

However, despite signs of a weakened economic landscape in the UK, analysts believe that these figures will not heavily influence the Bank of England’s current trajectory towards policy easing.

Luke Bartholomew, Deputy Chief Economist at abrdn, noted:

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‘The broader trend remains solid, although it is likely that the underlying pace of growth will slow somewhat over the second half of the year.
Certainly, there is no reason yet for the Bank and England to feel it needs to speed up the pace of rate cuts, and we expect the Bank to keep interest rates on hold next week.’

As a result, the Pound’s depreciation was minimal, with only slight losses noted against major currencies on Wednesday.

The Euro (EUR) displayed limited fluctuations against the majority of its significant trading partners on Wednesday, as market participants held back from making substantial moves ahead of the European Central Bank’s (ECB) highly anticipated interest rate decision.

The ECB is set to announce its decision on Thursday afternoon, with market consensus leaning heavily towards a 25 basis-point reduction in interest rates. This expectation has been largely priced into the market, reflecting a cautious optimism among investors.

Michael Field, Strategist at Morningstar, commented:

‘With 85% of economists polled expecting a 25 basis point rate cut by the ECB, it’s safe to say the markets will be disappointed if this doesn’t happen. When expectations are so unified though, generally it’s for a reason. In fact, two reasons that we can clearly identify.’

Amid a series of lacklustre economic reports from the Eurozone, the anticipated confirmation of a rate cut by the ECB could potentially lead to a weakening of the Euro against its global counterparts. Investors are closely monitoring the situation, gauging the potential impacts on the currency’s performance in the near term.

Looking forward, markets are keenly awaiting to see if the ECB opts for a rate cut, which could lead to a depreciation of the Euro. Conversely, should the ECB surprise markets by holding rates steady, the euro might find unexpected strength against its counterparts.

Looking to the Pound, a lack of substantial economic releases in the UK could leave GBP somewhat adrift, potentially causing Sterling to trade erratically or without clear direction.

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TAGS: Pound Euro Forecasts

• The Pound Sterling staged a late rebound against the US Dollar, with 1.3000 tested.
• GBP/USD awaits a fresh directional impetus from the UK CPI data and Fed, BoE decisions.
• Pound Sterling buyers fight back control above 21-day SMA, as the daily RSI flips bullish.

The Pound Sterling (GBP) stalled its correction from over two-year highs against the US Dollar (USD) and staged an impressive comeback, with the GBP/USD pair having tested the critical 1.3000 threshold.

Pound Sterling – A tale of two halves

GBP/USD witnessed good two-way price action, correcting sharply to a three-week low of 1.3002 in the first half of the week only to recover the weekly losses in the latter part. The sentiment around the pair was mainly driven by the dynamics of the US Dollar. The Greenback continued to remain at the mercy of the market’s expectations on the size of the interest rate cut by the US Federal Reserve (Fed) in the upcoming week.

The August US labor market data fuelled a late recovery in the USD against its major rivals last week, which extended well into this week and weighed heavily on the GBP/USD pair. US Nonfarm Payrolls rose by 142,000, missing a 160,000 gain estimated. On the other hand, the Unemployment Rate edged down to 4.2%, in line with expectations.

Discouraging US employment data rekindled worries about a possible economic downturn and lifted the haven demand for the Greenback. Markets continued to run for cover in the buck, bracing for the critical US inflation data on Wednesday. Data published by the US Bureau of Labour Statics (BLS) showed Wednesday that the CPI rose 0.2% MoM in August, aligning with the expected 0.2% print. US August core CPI jumped 0.3% MoM vs. estimates of 0.2%. Sticky underlying inflation figures prompted markets to rule out an outsized Fed rate cut this month.

The Pound Sterling also felt the heat from softer UK pay growth and Gross Domestic Product (GDP) data released on Tuesday and Wednesday respectively. Average Earnings excluding Bonus in the UK rose 5.1% 3M YoY in July versus a 5.4% growth seen in June.  The UK economy showed no growth over the month in July after stalling in June, data from the Office for National Statistics (ONS) showed Wednesday, missing the expected 0.2% growth.

These fundamental factors dragged GBP/USD to the lowest level in three weeks to just above the 1.3000 level. Buyers, however, managed to defend that key level, as the US Dollar saw a fresh selling wave on dismal US Producers Price Index (PPI) and Jobless Claims data, which reinforced bets of a 50 basis points (bps) rate reduction by the Fed at its September 18 policy announcement.

Annually, the headline PPI rose 1.7% in August, compared to the market consensus of a 1.8%  print. The core PPI increased by 2.4% YoY in the same period, below the estimate of 2.5%. Meanwhile, the Initial Jobless Claims came in at 230,000 for the week ended Sept. 7, up 2,000 from the previous period while aligning with the forecast. Dismal US data combined with the Wall Street Journal (WSJ) article on the Fed’s rate cut dilemma brought back bets for a jumbo cut at the September meeting, smashing the Greenback while propping up GBP/USD back above 1.3100.

Markets are now pricing in a 43% chance of the Fed cutting rates by 50 bps, up from 27% a day earlier, with a 57% probability of a 25 bps cut, the CME Group’s FedWatch tool showed. Increased dovish Fed expectations exacerbated the US Dollar’s pain on Friday. The last data release from the US showed ahead of the weekend that the consumer confidence improved slightly in early September, with the preliminary University of Michigan’s Consumer Sentiment Index edging higher to 69 from 67.9 in August. This reading came in above the market expectation of 68 but failed to help the USD stage a rebound.

Week ahead: All eyes on UK CPI data, Fed and BoE verdicts

All eyes now turn to the high-impact UK CPI inflation report and the all-important Fed and BoE policy announcements, which will determine the next directional move in the GBP/USD pair.

It’s a quiet start to the big central banks’ week, with no relevant data to be released on Monday. Tuesday will feature the US Retail Sales data while the UK docket remains data-dry.

Wednesday is a busy one, with the UK inflation data slated for release before the key Fed verdict and Chairman Jerome Powell’s press conference.

It’s not a ‘Super Thursday’, as the BoE will only announce its rate decision without the update projections and Governor Andrew Bailey’s presser to follow. That same day, the US calendar will see the publication of the weekly Jobless Claims, Existing Home Sales and Philly Fed Manufacturing data.

On Friday, the UK will release the Retail Sales data, as traders will look to a speech from BoE policymaker Cathrine Mann.

Fed policymakers will also return to the rostrum on Friday, as the Fed’s ‘blackout period’ comes to an end. 

GBP/USD: Technical Outlook

As observed on the daily chart, the GBP/USD pair defied bearish pressures and managed to find its footing above the key support at 1.3045 (July 17 high), having tested bids briefly at 1.3000.

On the road to recovery, the pair recaptured the 21-day Simple Moving Average (SMA) at 1.3119 on a daily closing basis, negating the bearish outlook in the near term.

Adding credence to the renewed upside, the 14-day Relative Strength Index (RSI) has regained the 50 level, currently near 58.00.

On the upside, GBP/USD must crack the falling trendline resistance at 1.3218 before aiming for the 29-month high of 1.3266. 

Further up, Pound Sterling buyers will find the next relevant resistance levels at the 1.3300 round level and the 1.3350 psychological barrier. 

Should buyers face rejection at the abovementioned trendline barrier at 1.3218, a correction could unfold toward the July 17 high of 1.3045.

A failure to sustain above that level could trigger a fresh decline toward the 50-day SMA at 1.2964.

The next relevant cushion aligns at the March 8 top of 1.2894, a break below which the 100-day SMA support at 1.2819 will come into play.

• Former Fed official Bill Dudley said that there was a strong case for a 50 bps rate cut.

• The likelihood of a 50 bps rate cut shot up from 28% to 45%.

• BoJ board member Naoki Tamura noted that the upside risk to inflation was increasing. 

The USD/JPY outlook shows a free-falling dollar as markets move to price in a higher likelihood of a super-sized Fed rate cut next week. At the same time, the yen strengthened as more Bank of Japan policymakers took on a hawkish tone. 

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On Thursday, the dollar fell to a fresh low for the year after reports that the Fed might consider a 50 bps rate cut at next week’s meeting. Moreover, former Fed official Bill Dudley said that there was a strong case for a 50 bps rate cut. As a result, the likelihood of a 50 bps rate cut shot up from 28% to 45%. Data on Wednesday showed that core consumer inflation beat expectations in August. Therefore, market participants increased the likelihood of a 25 bps rate cut, boosting the dollar.

Furthermore, data on Friday revealed that wholesale inflation was higher than expected. Recent data has pointed to a gradual pace for rate cuts. However, the reports on Friday showed that policymakers might consider a bigger cut.

Meanwhile, the yen was strong after another policymaker supported more rate hikes. BoJ board member Naoki Tamura noted that the upside risk to inflation was increasing. Higher inflation creates the best conditions for the Bank of Japan to hike interest rates.

USD/JPY key events today

Investors do not expect any key economic reports from the US or Japan. Therefore, the pair might extend Thursday’s move.

USD/JPY technical outlook: Bearish momentum eases near the 141.02 support

On the technical side, the USD/JPY price is on the brink of falling below the 141.02 support level. The bias is bearish as the price has made a series of lower highs and lows, indicating a downtrend. However, the decline has slowed near the 141.02 key level. It is becoming harder for the price to make lower lows.

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At the same time, the RSI has made a bullish divergence, indicating fading bearish momentum. If this is the end of the road for bears, the price might bounce higher from 14.02 to challenge the 30-SMA resistance. A break above the SMA would confirm a shift in sentiment. On the other hand, if bears remain in charge, the price will stay below the SMA.

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