• The USD/PY pair reached new lows on Friday after a mixed US employment report.

• The US nonfarm payrolls report showed slower job growth in August.

• Japan’s GDP grew by 2.9% compared to estimates of 3.2%.

The USD/JPY forecast shows a slight recovery in the pair from Friday’s plunge as the yen loses some of its shine. At the same time, the dollar gained as it became clear that the Fed might cut rates gradually. 

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After a mixed US employment report, the USD/PY pair reached new lows on Friday. The nonfarm payrolls report showed slower job growth, with the economy adding 142,000 jobs compared to estimates of 160,000. Meanwhile, the unemployment rate eased to 4.2%.

The initial reaction was a decline in the US dollar. However, it recovered as it became clear that the labor market was slowing down steadily. Therefore, the risk of a recession remains low. Although most major peers lost against the dollar on Friday, the yen remained steady due to rate hike optimism. 

Notably, on Thursday, BoJ board member Hajime Takata said the central bank should continue hiking interest rates. Nevertheless, he emphasized a cautious approach amid increased market volatility. Policymakers are ready to push interest rates higher as long as economic consumption increases. 

However, by Monday morning, economic data from Japan dampened some of this rate hike optimism. Japan’s economy grew slower than forecast in the second quarter. The GDP grew by 2.9% compared to estimates of 3.2%. Weaker-than-expected economic performance creates a challenge for the BoJ’s rate hike outlook. 

USD/JPY key events today

Market participants do not expect any high-impact economic releases in Japan or the US. 

USD/JPY technical forecast: Bears found rock bottom at 142.03 support

On the technical side, the USD/JPY price is recovering after finding support at the 142.03 level. Nevertheless, the price trades below the 30-SMA, with the RSI in bearish territory. Therefore, the bias is bearish, meaning the rebound might only be temporary. 

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Bulls are approaching a solid resistance zone comprising the 0.382 Fib and 144.00 key levels. Moreover, the SMA trades just above this zone. Consequently, the price will likely pause at this level and bounce lower. A break below 142.03 will confirm a continuation of the downtrend.

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• The Pound Sterling resumed its weekly recovery above the 1.3200 level.  
• GBP/USD remains poised for extra advances amidst Dollar weakness.
• The Pound Sterling is expected to closely follow key UK releases.

Following a drop below the key 1.3100 support earlier in the week, the Pound Sterling (GBP) managed to regain balance against the US Dollar (USD), lifting GBP/USD back north of the 1.3200 hurdle soon after US Nonfarm Payrolls disappointed expectations on Friday (+142K jobs). While that move fizzled out afterwards, it was not enough to reverse Cable’s positive weekly performance.

Pound Sterling continued to look at Dollar dynamics 

GBP/USD reversed the previous week’s downward bias on the back of the persistently bearish tone in the Greenback. The US Dollar remained under pressure against the backdrop of a renewed and aggressive Federal Reserve (Fed) easing narrative, which now includes a potential 50-basis-points interest-rate cut at its September 18 gathering.

The Dollar’s offered stance remained propped up by dovish remarks from the Fed’s Chairman, Jerome Powell, at the Jackson Hole Symposium in late August. His views were later reinforced by many Fed officials, who seem to have advocated for starting to reduce interest rates as soon as this month.

The BoE thinks otherwise

Following the Bank of England’s (BoE) rate cut on August 1, Governor Andrew Bailey argued that it remained uncertain whether the persistent elements of inflation were aligned with keeping price increases at the bank’s 2% target. He also questioned whether the current decline in inflation persistence was largely assured as global shocks that previously drove up inflation were easing, or if the UK economy would need a period of slack.

Furthermore, at his speech in Jackson Hole, Bailey said that he believed longer-term inflation pressures were easing. However, he highlighted that further interest-rate cuts would not be made hastily, as it was still too early to be certain that inflation had been fully controlled.

A survey released on Thursday indicated that British companies expect to raise their selling prices by the smallest margin in nearly three years, while wage growth shows no signs of slowing. This mixed news poses a challenge for BoE officials assessing inflation pressures.

Indeed, according to the BoE’s Decision Maker Panel (DMP), closely monitored by the Monetary Policy Committee, businesses in the three months to August anticipated a 3.6% rise in selling prices over the next year. This is the lowest figure since September 2021, slightly down from a previous estimate of 3.7%. However, projections for wage growth, a key factor for the BoE in monitoring inflation, remained steady at 4.1% for the three months to August, unchanged from July’s survey. The monthly data revealed that wage growth forecasts have been stable at 4.0% to 4.1% since May, indicating that the sharp decline in expectations seen over the past 18 months has halted. That said, persistent wage growth remains a major concern for the hawkish members of the MPC, who are worried that it could lead to prolonged inflationary pressures in the economy.

Investors estimate about a 25% likelihood that the “Old Lady” will cut interest rates at its September 12 policy announcement, while a rate cut is fully anticipated for November.

What’s next for the Pound Sterling?

All the attention is expected to be on the publication of US inflation figures tracked by the Consumer Price Index (CPI). However, the UK calendar appears pretty interesting with the releases of the always-relevant labour market report on Tuesday, and GDP figures among other key fundamentals, on Wednesday.

GBP/USD: Technical Outlook

If bearish momentum takes hold, GBP/USD could retest the September low of 1.3087 (set on September 3), followed by the interim 55-day SMA at 1.2900 and the important 200-day SMA at 1.2720. Beyond these levels, the pair may target the August low of 1.2664 (from August 8), the June low of 1.2612 (from June 27), and the May low of 1.2445 (from May 9). A break below this zone could bring the 2024 bottom of 1.2299 (recorded on April 22) back into focus, seconded by potential moves toward the weekly lows of 1.2187 (from November 10, 2023) and 1.2069 (from October 26), and ultimately the October 2023 low of 1.2037 (from October 4).

Conversely, on the upside, the immediate resistance for GBP/USD stands at the 2024 high of 1.3266 (reached on August 27), ahead of the weekly top of 1.3298 (from March 23, 2023) and the February 2022 peak of 1.3643 (from February 10). The daily RSI has eased a tad below 63.

I wrote on 1^st September that the best trade opportunities for that week were likely to be:

• Long of the EUR/USD currency pair following a bullish daily close above $1.1057. This set up on Wednesday but ended the week only at break even.
• Long of Gold in USD terms following a daily close above $2,525. This did not set up.
• Long of the S&P 500 Index following a daily close above 5,668. This did not set up.

Last week’s key takeaways were:

1. US Non-Farm Payrolls data came in notably lower than expected, with only 142k net new jobs created last month, compared to the expected figure of 164k. This was dovish for the US Dollar and the Fed’s monetary policy outlook. However, average hourly earnings data released simultaneously showed a month-on-month increase of 0.4% when only 0.3% was expected, which slightly tempered the dovish effect. The overall result of the data was to push the US Dollar and US treasury yields lower. Markets now expect the Fed to cut rates by a full 1%, at least by the end of 2024.
2. The Bank of Canada cut its interest rate by 0.25% for the third consecutive meeting, from 4.50 to 4.25%. The cut was widely expected, and the Bank held out the prospect of further reductions if inflation continued to look tame.
3. The only other significantly notable data release was Swiss CPI (inflation), which showed no change month-on-month, while an increase of 0.1% was expected. This continues the trend of most G20 nations, showing inflation falling faster than expected, which globally is a dovish trend for monetary policy.
4. Commodity currencies such as the Australian and New Zealand Dollars and commodities in general (especially softs) had a tough week as chilly risk-off winds breezed through markets. The week’s big winner was the Japanese Yen, followed by the Swiss Franc, another traditional safe haven. The US Dollar ended the week softer following weaker-than-expected NFP data.
5. Stock markets saw strong losses, especially technology stocks.

It will be a slightly slower week ahead in terms of data, but it includes more important data, with the most important items this coming week expected to be:

1. US CPI data – this event is currently the most important monthly data release in the Forex market.
2. US PPI
3. European Central Bank Main Refinancing Rate and Monetary Policy Statement – the ECB is expected to cut its Official Rate from 4.25% to 3.65%.
4. UK GDP
5. US Unemployment Claims
6. UK Unemployment Claims (Claimant Count Change)

I forecasted that the EUR/USD currency pair would rise in value during September. The performance of my forecast so far is as follows:

Last week, I made no weekly forecast, as there was no large group of currency crosses with unusually large directional movement, which is the basis of my weekly trading strategy.

This week, I again give no weekly forecast, as although 6 currency crosses fluctuated in value by more than 2%, I only like to trade when at least 7 have done so. The odds of profitable reversals are better when many crosses have abnormally large price movements. The volatility now is in the Japanese Yen alone.

Directional volatility in the Forex market rose last week—56% of the most important currency pairs and crosses fluctuated by more than 1%.

Last week, the Australian Dollar was the strongest major currency, while the Japanese Yen was again the weakest.

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The US Dollar Index printed a bearish candlestick last week, albeit with a significantly lower wick, suggesting the bearish momentum may not be strong. The price is below its levels three and six months ago, suggesting a long-term bearish trend in the greenback. Recently, the price broke down below the long-term consolidating triangle pattern, which was a significant bearish sign.

The overall picture is bearish, but the price is likely to consolidate until next Wednesday’s release of US CPI (inflation) data. Data from last week suggested that the US economy is a little weaker than expected, and it is now expected that the US Federal Reserve will cut rates by a full 1% before the start of 2025.

This week, I am cautiously bearish on the US Dollar due to the bearish trend.

The EUR/USD currency pair ended the week printing a higher candlestick, but looking at the price chart below, it is hard to say it looks bullish – but for this currency pair, which is prone to deep retracements, it still might be. That large upper wick is daunting for bulls, though.

The price remains within a valid long-term bullish trend.

Just like last week, I think a long trade here is still a good possibility, provided that the nearest support level at $1.1066 survives.

Much will depend on US CPI data, the policy statement, and the likely rate cut from the European Central Bank, which is due later this week. These events will likely cause some volatility here, as both currencies in the pair are directly affected.

The USD/JPY currency pair continues to be at the heart of the modern Forex market and is still showing a high level of range volatility.

The Yen was the strongest of all major currencies two weeks ago, and it was again this week. There are two good reasons for the strength of the Japanese Yen:

1. There is increasing fear in the market of recession, especially in the USA, which has caused a run to safe havens. As the US Dollar is seeing increasingly dovish tilts in its monetary policy, the number one choice for a safe currency is now the Japanese Yen (the Swiss Franc is also strong for the same reason).
2. The Bank of Japan has decisively shifted away from its former ultra-loose monetary policy after years of negative interest rates, which has prompted a belief that the Yen will continue to advance.

Last week’s candlestick was very bearish—it was relatively large, and the price closed very near the low of its range. It was the lowest weekly close seen in more than eight months, and the price is very near a full eight-month low.

I see this currency pair as a sell.

I expected the USD/CAD currency pair to have potential support at $1.3471.

The H1 price chart below shows how the price action rejected this support level with a very large and very bullish hourly pin bar, marked by the up arrow within the price chart below. This rejection occurred just at the start of the overlap of the London / New York sessions, which can often be a great time for reversals such as these in the US Dollar.

The trade made a profit so far of slightly less than 2 to 1.

All the commodity currencies are weak, and the Canadian Dollar is no exception, although it remains notably stronger than the Australian and New Zealand Dollars. The bearishness in Crude Oil helps drag the Loonie lower, with WTI reaching a new 1-year low price last week.

Gold in US Dollar terms has been grinding higher for weeks in a choppy, long-term bullish trend. Over the last few weeks, it has rejected the blue sky above the big round number $2,500 at least five times. This is a bearish sign despite the long-term bullish trend and recent record highs.

Last week, the price briefly touched a new all-time high, but looking at the weekly price chart below, we can see that last week’s candlestick was the third indecisive candlestick in a row and the second doji within that three-candlestick formation. This indicates indecision in the market.

The bearish retracement from the record high is still shallow, so it could be too soon to go short, especially if the price keeps finding support at $2,494.

Something to watch for is if the price turns strongly bullish again and decisively takes out the record high. This could be a decisive bullish sign after the five rejections, suggesting that a new long trade entry could be an excellent trade.

I see Gold as a buy if we get a daily close this week above $2,525.

The NASDAQ 100 Index fell strongly last week, in what was one of its worst-performing weeks in recent times. The large size of the bearish candlestick and the fact that it closed right on the low of its range are bearish signs.

Markets are firmly in risk-off mode and will likely remain that way until there is more clarity on the prospects of a soft landing for the US economy. US CPI data due this week will likely provide a clue on this or prompt the Fed to give more clarity on its intentions.

The price is still not very far from its record high, but it looks like the bullish stock market, especially in the technology sector, might be over.

 However, I think it is too early to take a short trade here—shorting is a risky undertaking in stock markets.

The price is sitting on two key support levels and has not broken the levels of a recent bullish pin bar. Therefore, bears should not open any new short trades here.

Some CFD brokers offer trading in US Treasury Yields, and traders with larger bankrolls can access this asset through the CME micro futures market. Treasury yields can be great for trend traders as they have historically tended to trend very reliably.

The continuing slowdown in the US economy, lower inflation, and increasing fears of a recession in the USA have all combined to push expectations of the Federal Reserve in an increasingly dovish direction. This has pushed short-term (2-year) treasury yields lower and lower.

The daily price chart below shows that the yield fell strongly last Friday following lower-than-expected US non-farm payrolls data. It made the lowest daily close in one year and also traded at a new six-month low.

As all trend traders should be, I am interested in being in a short trade here as it aligns with the direction the Fed is getting pushed in.

I see the best trading opportunities this week as:

• Long of the EUR/USD currency pair following a bullish bounce off $1.1066.
• Long of Gold in USD terms following a daily close above $2,525.
• Short of the USD/JPY currency pair.
• Short of the 2-Year US Treasury Yield.

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STORY LINK Pound to Euro Week Ahead Forecast: September Holds Key for GBP/EUR

Goldman Sachs forecasts that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.22 on a 12-month view.

During the week, GBP/EUR strengthened to 5-week highs just above 1.19 before a correction to 1.1875. The pair remains close to the resistance levels above 1.19 which were tested in July.

Other investment banks such as ING have dropped near-term expectations of GBP/EUR losses.

UK and global developments during September could be crucial in determining whether bearish views are reinstated or dropped more permanently.

ING has been bearish on GBP/EUR, but notes that rates have moved in the opposite direction; “The EUR:GBP 2-year swap rate gap shifted in favour of GBP of late thanks to some hawkish repricing in the Sonia curve and markets adding ECB easing bets yesterday. It is now at -146bp, the widest since February, meaning that a rebound in EUR/GBP now requires a meaningful rebuilding in Bank of England easing expectations.”

It added; “That seems unlikely to happen until we get new tier-one data in the UK, as BoE officials have broadly reiterated a cautious stance on easing.”

Euro-Zone data was an important element for the Euro and GBP/EUR during the week.

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There was a further limited retreat in the German IFO business confidence index, reinforcing concerns over the outlook.

Oxford Economics commented; ‘We think it will take Germany’s manufacturing sector until the end of this year to emerge from the economic slump, but the deterioration in the services sector highlights the broad weakness in the German economy.”

German and Spanish inflation readings for August were weaker than expected.

The headline Euro-Zone inflation rate declined to 2.2% for August from 2.6% previously which was in line with consensus forecasts and the lowest reading for three years.

The core rate edged lower to 2.8% from 2.9%.

There are strong expectations that the ECB will cut rates in September.

Domestically, the Lloyds Bank business confidence index held at 50% for August.

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, commented; “Overall, the economy looks to be stable and from the positive results recorded, businesses are echoing this sentiment.”

According to Goldman Sachs, UK data signals have been important; “Whereas our constructive view on the Pound relies heavily on its external betas, with the positive global risk sentiment on the back of lower yields helping the currency, domestic data are now playing an increasingly important role.”

JP Morgan noted the recent firm UK data and was particularly impressed by the employment components within the PMI report.

The bank has previously recommended buying GBP/EUR and maintains a positive stance; “We think the relative growth dynamics alone justify the pair trading cheap to fair value, and so that partly motivates our decision to keep the trade on. Elsewhere, we see a potential further normalisation in FX volatility as being favourable for the trade, making it more attractive for GBP longs.

It also considers that GBP/EUR has weathered traditionally negative seasonal factors during the Summer period which increases the scope for gains.

Rabobank also maintains a positive stance; “we look for the pound to perform well against both the USD and the EUR into next spring.”

Credit Agricole expects European currencies will struggle, but with scope for net GBP/EUR gains; “We continue to see the risks for both the EUR and the GBP to the downside from current levels in the near term. In that, the combination of weak economic data, dovish central bank rhetoric and persistent political risks could make the EUR the relative underperformer.”

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• US employment figures showed that the labor market is slowing down.

• The US nonfarm payrolls report showed a smaller-than-expected job increase in August.

• US inflation data will be the last major report before the Fed’s policy meeting.

The GBP/USD weekly forecast shows a temporary pause in a solid bullish trend as investors await the first Fed rate cut while the US NFP gives no clear direction. 

Ups and downs of GBP/USD

The pound had a bearish week, fluctuating amid mixed US economic data. Meanwhile, the UK provided few catalysts. Employment figures showed that the labor market is slowing down. Vacancies fell more than expected, and private job growth slowed.

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Meanwhile, the nonfarm payrolls report showed a smaller-than-expected job increase in August. However, the unemployment rate held steady at 4.2%. Meanwhile, data on business activity in the services sector showed a better-than-expected improvement, indicating a resilient economy. 

Next week’s key events for GBP/USD

Next week, investors will pay attention to the UK’s employment and GDP data. Meanwhile, the US will release consumer and producer inflation data. The pound has benefitted in recent weeks due to expectations for fewer rate cuts in the UK compared to the US.

Therefore, if UK wage growth confirms fears that British services inflation remains high, BoE rate cut expectations might drop, boosting the pound. Moreover, the pound would rally, given the declining US labor market. The Fed is in a better position to start lowering borrowing costs. 

Meanwhile, US inflation data will be the last major report before the Fed’s policy meeting. Softer-than-expected figures will increase the likelihood of a 50-bps rate cut.

GBP/USD weekly technical forecast: Bullish trend pauses for a brief pullback

On the technical side, the GBP/USD price is in a bullish trend. Although the price chops through the 22-SMA, it has maintained an upward trajectory. This means it has made a series of higher highs and lows. At the same time, the RSI has traded mostly above 50, supporting solid bullish momentum. 

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Bulls recently broke above the critical resistance level of 1.3000. However, they failed to trade above the 1.3200 resistance, allowing bears to take charge. Nevertheless, the bullish bias remains intact since the price is still above the SMA. Therefore, the pullback will likely pause at the SMA and bounce higher. On the other hand, if it punctures the SMA and the 1.3000 level, it might find support at the bullish trendline. A new high above 1.3200 will continue the bullish trend.

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• USD/JPY downtrend continues, as downward momentum accelerates after volatility from US Nonfarm Payrolls data.
• Key support levels include 142.50, 142.00, and today’s low of 141.77, with further downside likely if these are breached.
• Resistance stands at 143.44, with higher targets at 144.49 (Tenkan-Sen) and 145.00 (Senkou Span A) if bulls regain control.

The USD/JPY extended its losses late on Friday’s North American session, bolstered by the losses of the yield of the US 10-year T-note. The Greenback recovered some ground against most G8 FX currencies, except safe-haven currencies like the Japanese Yen. At the time of writing, the pair trades at

USD/JPY Price Forecast: Technical outlook

The USD/JPY downtrend continued after the latest US Nonfarm Payrolls report sparked volatility in the pair, which seesawed within a 230-pip range on the day, but as the dust settled, sellers remained in charge.

Momentum had accelerated to the downside, confirmed by the Relative Strength Index (RSI) aiming lower, an indication of a strong trend.

The USD/JPY’s first support would be the psychological level of 142.50. Once surpassed, the next stop would be the 142.00 mark, followed by today’s low of 141.77. Once those two levels are cleared, the drop could extend toward the August 5 low of 141.69.

On the other hand, the first resistance would be the August 26 daily low of 143.44. A breach of the latter would expose key resistance levels. First, the Tenkan-Sen will be at 144.49, followed by the Senkou Span A at 145.00. Up next would be the Kijun-Sen at 145.73.

USD/JPY Price Action – Daily Chart

• EUR/USD holds steady above 1.1100 after a two-day rally.
• The bullish bias remains intact in the near term.
• Nonfarm Payrolls in the US are forecast to rise 160,000 in August.

EUR/USD registered strong gains for the second consecutive day on Thursday before entering a consolidation phase above 1.1100 in the European session on Friday. Investors refrain from taking large positions while waiting for the US Bureau of Labor Statistics to release the August jobs report.

The data published by the Automatic Data Processing showed on Thursday that employment in the private sector rose 99,000 in August. This reading missed the market expectation of 145,000 by a wide margin and triggered another leg of US Dollar (USD) selloff.

Nonfarm Payrolls (NFP) in the US are forecast to rise 160,000 in August following July’s disappointing increase of 114,000. In case this data comes in near 100,000, investors could lean toward a large September Federal Reserve (Fed) rate cut and force the USD to continue to weaken against its major rivals. According to the CME FedWatch Tool, markets are currently pricing in a 43% probability of a 50 basis points rate cut at the upcoming policy meeting.

On the other hand, a positive surprise in NFP, with a print close to 200,000, could help the USD rebound and cause EUR/USD to correct lower heading into the weekend.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 70, suggesting that EUR/USD has more room on the upside before turning technically overbought. On the upside, 1.1160 (static level) aligns as immediate resistance ahead of 1.1200 (end-point of the latest uptrend) and 1.1250 (static level from July 2023).

In case EUR/USD drops below 1.1100 (100-period Simple Moving Average (SMA), 50-period SMA, Fibonacci 23.6% retracement) and starts using this level as resistance, technical sellers could take action. In this scenario, 1.1040 (Fibonacci 38.2% retracement) could be seen as next support before 1.1000 (200-period SMA, Fibonacci 50% retracement).

EUR/USD Current price: 1.1083

• German inflation fell more than anticipated in August,  rising by 1.9% YoY.
• The United States upwardly revised the Q2 Gross Domestic Product to 3%.
• EUR/USD at fresh weekly lows and technically poised to extend its slide.

The EUR/USD pair fell to 1.1072 early on Thursday, bouncing just modestly from the level and trading near such a low ahead of the United States (US) opening. The US Dollar gathered momentum during European trading hours, as a sour sentiment dominated the first half of the day.

NVIDIA, the leading AI and chip giant, reported earnings after Wednesday’s close, which beat expectations, yet shares fell roughly 8% after the news. Analysts attributed the decline to the fact that revenue guidance for the current quarter missed some estimates, while the company reported that it was facing difficulties in developing a new generation of chips.

Asian indexes closed in the red, but European ones shrugged off the dismal mood and hold in the green, halting the USD advance.

Data-wise, Germany released the preliminary estimates of the August inflation data, which surprised investors by falling more than anticipated. The Consumer Price Index (CPI) rose 1.9% YoY, below the 2.1% anticipated, while the CPI was down 0.1% compared to the previous month. The broader Harmonized Index of Consumer Prices (HICP) increased by 2.0% in the year to August and fell by 0.2% compared to July.

Across the Atlantic, the US published Initial Jobless Claims for the week ended August 23, which decreased to 231K, beating expectations. At the same time, the second estimate of the Q2 Gross Domestic Product (GDP) was upwardly revised to 3% from the previous estimate of 2.8%. The encouraging data provided additional support to the USD.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair suggests more slides are on the docket. The pair fell for a second consecutive day, resulting in technical indicators heading firmly south, although still above their midlines. The bearish momentum, however, remains the same. At the same time, the 20 Simple Moving Average (SMA) maintains its bullish slope, providing dynamic support at around 1.1020. A break below the latter should fuel selling.

In the near term, and according to the 4-hour chart, the downward momentum eased, but the risk remains skewed to the downside. Technical indicators are stabilizing near oversold readings, still far from suggesting downward exhaustion. Meanwhile, the 20 SMA has turned lower well above the current level, acting as dynamic resistance at around 1.1145.

Support levels: 1.1065 1.1020 1.0985

Resistance levels: 1.1110 1.1145 1.1190  

• The Pound Sterling reached a two-year high against the US Dollar amid a renewed rise in global equity markets, with one market expert saying that any weakness would only invite more buying interest.
• According to reliable trading platforms, the GBP/USD currency pair rose to the resistance level of 1.3265, its highest in two years.
• Its gains came with European equity markets outperforming and traders continuing to play on the theme of divergent monetary policy between the US and the UK.

Overall, US equity markets seem poised to start the day on a decline, but German and British markets are recovering and rising by about half a percent each. Obviously, that’s indicating demand for European assets that is helping the Pound Sterling. Commenting on this, a note from the JPMorgan forex trading desk states: “Despite all my doubts, the Pound Sterling continues to trade like a rock star as we easily exit the triple top at 1.3145 after Jerome Powell’s comments.”

According to forex market trading, the GBP/USD rose last Friday after Powell showed a clear intention to cut US interest rates in September, as financial markets were surprised by the extent of his commitment to this move. Previously, the Federal Reserve had insisted that it would move cautiously on cutting US interest rates, but Powell’s speech seemed like a “pause” moment.

In fact, financial markets have seen good odds that the Federal Reserve will start the cut cycle with a large 50 basis point hike, which was still seen as an unlikely scenario before his speech. Consequently, the result is a selling of the US dollar that extends into Tuesday and takes the GBP/USD pair to a new high for 2024 at 1.3260.

According to technical analysis, there is not much on the upside for the GBP/USD pair in terms of levels, except for a secondary pivot zone at 1.3275/00. Also, we struggle to reinvest meaningfully in the Pound Sterling here, and we acknowledge that declines towards the 1.3145 pivot should be bought in the coming sessions.

The Pound Sterling is also supported by Bank of England Governor Andrew Bailey’s speech last Friday, in which he said it is too early to say that the battle against inflation is over, indicating that the bank will not be in a hurry to cut interest rates again. According to analysts, Bailey seems relatively comfortable about inflation, and we have seen the first decline in the BRC in nearly three years, but falling prices are treated as a boon for the currency.

The British Retail Consortium (BRC) said its measure of shop price changes showed prices fell by 0.3% in August, down from +0.2% in July. Moreover, this is below the three-month average of 0.0%, and annual shop price growth remained at its lowest level since October 2021. UK inflation has been falling since 2023, but this means that the pace of increase has only been slowing. Furthermore, the outright falls in prices offer relief to shoppers as the absolute level of goods resulting from a period of abnormal inflation can begin to fall and boost purchasing power.

On the other hand, the yield on 10-year UK bonds is falling. According to electronic trading, the yield on 10-year UK bonds has fallen to 3.95% as investors expect lower interest rates. Earlier in August, the Bank of England cut its benchmark interest rate by 25 basis points to 5%, with markets expecting further cuts of 41 basis points by the end of the year. However, better-than-expected UK economic data and cautious comments from Bank of England Governor Andrew Bailey about further rate cuts have tempered these expectations.

Meanwhile, British Prime Minister Keir Starmer has highlighted the long road ahead to address the issues he attributes to the previous Conservative government, warning that conditions could worsen before they improve. In the United States, weak economic data and comments by Federal Reserve Chairman Jerome Powell have fuelled speculation of future interest rate cuts by the Fed.

On the stock trading platforms front, British stocks paused after four days of gains. According to trading, the FTSE 100 index fluctuated between small gains and losses on Wednesday after four days of gains, as investors exercised caution ahead of Nvidia’s quarterly results, which could impact the AI-driven global stock rally. Among individual stocks, Kingfisher shares fell 2% after Citigroup downgraded it to “neutral” from “buy.” Prudential shares fell 1% after reporting weaker performance in China and Indonesia. On the positive side, the pharmaceutical sector gained, with GSK shares rising 2%. GSK, along with other pharmaceutical companies, is resuming in Delaware to end more than 70,000 lawsuits alleging that the discontinued heartburn drug Zantac causes cancer. Direct Line Insurance shares rose 1.2% after Citigroup upgraded it to “neutral” from “buy,” boosting non-life insurers.

Technical forecasts for the GBP/USD pair today:

Based on the daily chart performance, the overall trend of the GBP/USD pair remains bullish. However, it’s crucial to consider that today’s US economic data results will significantly impact the sentiment towards the continued weakness of the US dollar. If the data is negative, it could reverse the pair’s direction and turn it bearish, requiring a break below the support level of 1.3045

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