The likelihood of a 50 bps Fed rate cut in September fell amid better-than-expected data.
This week, traders will watch the Jackson Hole symposium.
Bank of Japan governor Kazuo Ueda will speak on Friday.
The USD/JPY forecast points to solid bearish momentum as the yen rallies on divergence in policy outlook for the Bank of Japan and the Fed. Fed policymakers will likely assume a dovish tone and support expectations for a rate cut in September. On the other hand, BoJ policymakers have taken a hawkish tone, which could indicate that more rate hikes will come.
The yen has rallied since Friday as Fed rate cut expectations rose. At the same time, investors took profits on the recent dollar rally, weakening the greenback. Last week, the likelihood of a 50 bps Fed rate cut in September fell amid better-than-expected data. However, that of a smaller cut increased. Markets are currently fully pricing a 25 bps rate cut in September. Although the rate-cutting cycle might be gradual, it will likely start next month. Consequently, the dollar might remain fragile.
This week, traders will watch the Jackson Hole symposium, during which Powell might drop hints on the Fed’s policy path. Experts believe the Fed Chair might signal the start of rate cuts in September. At the same time, the FOMC policy meeting minutes will show what went into the last decision to hold interest rates.
Meanwhile, in Japan, the central bank has started hiking interest rates and could do so again. Bank of Japan governor Kazuo Ueda will speak on Friday. A hawkish tone will further highlight the divergence in policy outlooks between Japan and the US.
USD/JPY key events today
Traders do not expect high-impact economic data from the US or Japan. Consequently, the pair might extend last week’s move.
USD/JPY technical forecast: Bearish turn puts 142.56 in bears’ sights
USD/JPY 4-hour chart
On the technical side, the USD/JPY price has broken below the 30-SMA, indicating a bearish sentiment shift. At the same time, the price has fallen below its bullish trendline and the 0.382 Fib level. In the previous move, bulls had set their sights on the 150.03 resistance level and the 0.618 Fib. However, before the price got there, there was a whiplash move that saw bears taking over.
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The RSI now trades below 50, supporting bearish momentum. Therefore, the price might continue falling to the 142.56 support level.
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The daily analysis of the GBP/JPY shows that we have had a major break out to the upside, as we have cleared the crucial ¥190 level.
This is an area that I think continues to attract a lot of attention due to the fact that it is a large round psychologically significant figure, and it had previously offered resistance for several days in a row.
One of the things it seems to have kicked off the carry trade again as the idea that the US economy is not slowing down as drastically as people had hoped, and therefore the interest rate differential between the Japanese yen and almost everything else should continue to remain quite wide. After all, the Bank of Japan cannot necessarily tighten monetary policy for a significant amount of time, at least not without wrecking the Japanese economy itself.
Interest Rate Differential
The interest rate differential between the British pound and the Japanese yen is essentially a mile wide, and as long as that’s going to be the case, it makes a lot of sense that traders will be hanging onto this pair as you get paid to do so. With that being the case, I like the idea of buying short-term pullbacks, with perhaps the area right around the ¥190 level as a short-term support level. On the other hand, if we break above the 200-Day EMA, then the market could go looking to the ¥195 level next, which has seen a bit of action in the past.
The size of the candlestick is of course very bullish, and that does suggest that we have more momentum in this market to burn off, meaning that we could go much higher. However, if we were to turn around a breakdown below the ¥188 level, that could send this market crashing back toward the ¥183 level underneath which has been an area of significant noise in the recent past. Ultimately, that’s the least likely of scenarios but it is something that you need to keep in the back of your head just in case.
“They won’t be able to hike again, at least for the rest of the year. It’s a toss-up whether they can do one hike by next March.”
US Economic Calendar
Later in the session on Monday, the US Leading Economic Index (LEI) may influence US dollar demand.
Economists forecast the LEI to fall by 0.3% in July after a 0.2% decline in June. A larger-than-expected fall may rekindle fears of a hard landing, supporting a USD/JPY move toward 145. The LEI offers insights into the US economic outlook, affecting sentiment toward the Fed rate path.
Beyond the economic data, FOMC member commentary also needs consideration. Voting member Christopher Waller will speak on Monday. In July, Waller stated that favorable CPI Reports could support a rate cut soon. A shift in stance regarding interest rate cuts could affect US dollar demand amid speculation about multiple 2024 Fed rate cuts.
Expert Views on the Fed Rate Path
Arch Capital Global Chief Economist Parker Ross remarked on the US CPI Report and the Fed rate path, stating,
“Core services inflation (0.31% m/m) – the sticky component the Fed has been worried about – bounced back in July from its weakest monthly reading since 2021.”
Short-term Forecast: Bearish
USD/JPY trends will depend on the US LEI, central bank forward guidance, and Services PMI numbers. Support for a Q4 2024 BoJ rate hike could pull the USD/JPY toward 145. Weak stats from the US and a more dovish FOMC may also signal a drop toward 145.
Investors should remain alert. Monitor real-time data, central bank insights, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.
USD/JPY Price Action
Daily Chart
The USD/JPY remained well below the 50-day and 200-day EMAs, affirming bearish price signals.
A USD/JPY break above the 148.529 resistance level and the top trend line would support a return to 150. Furthermore, a breakout from 150 could give the bulls a run at the 200-day EMA and the 151.685 resistance level. Selling pressure may intensify at the 151.685 resistance level as the 200-day EMA is confluent with the resistance level.
Economic indicators from the US and central bank commentary require consideration on Monday.
Conversely, a fall through 147.500 could signal a fall toward the 145.891 support level. A break below the 145.891 support level may bring the 143.495 support level into play.
The 14-day RSI at 39.06 indicates a USD/JPY drop below 147 before entering oversold territory.
(MENAFN– Daily Forex) The daily analysis of the GBP/JPY shows that we have had a major break out to the upside, as we have cleared the crucial u0026yen;190 level is an area that I think continues to attract a lot of attention due to the fact that it is a large round psychologically significant figure, and it had previously offered resistance for several days in a row of the things it seems to have kicked off the carry trade again as the idea that the US Economy is not slowing down as drastically as people had hoped, and therefore the interest rate differential between the Japanese yen and almost everything else should continue to remain quite wide. After all, the Bank of Japan cannot necessarily tighten monetary policy for a significant amount of time, at least not without wrecking the Japanese economy itself. Top Forex Brokers 1 Get Started 74% of retail CFD accounts lose money Read Review BrokerGeoLists({ type: u0027MobileTopBrokersu0027, id: u0027mobile-top-5u0027, size: 5, getStartedText: u0060Get Startedu0060, readReviewText: u0060Read Reviewu0060, Logo: u0027broker_carrousel_iu0027, Button: u0027broker_carrousel_nu0027, });Interest Rate DifferentialThe interest rate differential between the British pound and the Japanese yen is essentially a mile wide, and as long as thatu0026rsquo;s going to be the case, it makes a lot of sense that traders will be hanging onto this pair as you get paid to do so. With that being the case, I like the idea of buying short-term pullbacks, with perhaps the area right around the u0026yen;190 level as a short-term support level. On the other hand, if we break above the 200-Day EMA, then the market could go looking to the u0026yen;195 level next, which has seen a bit of action in the past size of the candlestick is of course very bullish, and that does suggest that we have more momentum in this market to burn off, meaning that we could go much higher. However, if we were to turn around a breakdown below the u0026yen;188 level, that could send this market crashing back toward the u0026yen;183 level underneath which has been an area of significant noise in the recent past. Ultimately, thatu0026rsquo;s the least likely of scenarios but it is something that you need to keep in the back of your head just in case.
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Commerzbank’s economists have revised their Fed forecast downwards very significantly – by more than they are lowering their US inflation forecast. Also, they’re slightly lowering ECB interest rate expectations and significantly lowering their inflation forecast, Commerzbank’s Head of FX and commodity research Ulrich Leuchtmann notes.
USD weakness in the medium term
“We have changed our EUR/USD forecast. As regular readers know, we believe that a good part of the USD strength seen so far was based on the impression of a structural US growth advantage and a particularly active US monetary policy. Since we now have to assume that this impression will be eroded by actual developments in the coming quarters, we now have to assume USD weakness in the medium term.”
“And because at the same time the EUR-negative argument of high eurozone inflation rates and a fairly relaxed ECB monetary policy is at least significantly weakened in view of our more moderate eurozone inflation forecast, some of the EUR-negative arguments also fall away. Both together mean that we now have to assume that EUR/USD will rise significantly. We consider levels around 1.14 to be possible by mid-2025.”
“In the second half of 2025, the picture could change again. If – as we expect – the US economy picks up again, the impression may arise that the Fed at least no longer has any scope for interest rate cuts, and perhaps even fantasies of interest rate hikes will make themselves felt again. And perhaps it will then be time again for the market to take a more skeptical view of the ECB’s monetary policy.”
The Pound Sterling hit a two-week high against the US Dollar, extending its recovery from five-week lows.
GBP/USD buyers to retain control as eyes turn to Fed Minutes, PMI data and Jackson Hole Symposium.
The path of least resistance appears to the upside for the Pound Sterling amid bullish technicals.
The Pound Sterling (GBP) sustained the rebound and hit a two-week high against US Dollar (USD), driving the GBP/USD pair to the 1.2900 mark amid a data-dominated week.
Pound Sterling cheered Fed-BoE policy divergence
GBP/USD rebounded strongly this week, helped by the return of risk flows and divergent monetary policy outlooks between the US Federal Reserve (Fed) and the Bank of England (BoE).
The high-impact economic data releases from both the US and the UK underscored the central bank’s imbalances regarding their potential policy action. Earlier in the week, strong UK employment data and hot Consumer Price Index (CPI) data prompted investors to dial down their expectations of the BoE lowering interest rate in September.
The annual UK inflation increased to 2.2%, rising back above the BoE’s 2.0% target, the Office for National Statistics (ONS) said, slightly less than the median forecast of 2.3%. Meanwhile, UK employment data was a positive surprise, with the Unemployment Rate falling from 4.4% to 4.2% in the quarter to June, beating market expectations of an increase to 4.5%. These figures were boosted by an increase in part-time jobs.
Data published by the ONS showed Friday that the UK Retail Sales rebounded 0.5% over the month in July after dropping 1.2% in June, aligning with the market forecast of a 0.5% increase in the reported month. The Core Retail Sales, stripping the auto motor fuel sales, jumped 0.7% MoM, against the previous decline of 1.3%, a tad softer than expectations.
On the other hand, strong US Retail Sales and Jobless Claims data combined with a benign inflation report suggested that a September rate cut from the Fed is very well on the table. Retail Sales in the US climbed 1% on the month, according to numbers adjusted for seasonality but not for inflation, beating the expectations of a 0.3% increase by a wide margin. Meanwhile, Initial Jobless claims for the week ended Aug. 10 came in at 227,000, a drop of 7,000 from the previous week and lower than the estimate for 235,000.
The annual US CPI inflation slowed for a fourth consecutive month to 2.9% in July 2024, the lowest since March 2021, compared to 3.0% in June and below forecasts of 3.0, the monthly CPI rebounded 0.2% last month after falling 0.1% in June, the Labor Department’s Bureau of Labor Statistics (BLS) said on Wednesday.
Markets are now pricing in just a 25% chance of a 50 basis points (bps) cut from the Fed next month, down from 55% a week ago, according to the CME Group’s FedWatch tool. However, the odds of a 25 bps September rate reduction still hold above 70%.
Other than policy divergence, risk sentiment remained in a sweeter spot almost throughout the week, following the previous week’s volatility that roiled it. No fresh signs of Middle East geopolitical escalation between Iran and Israel calmed nerves while encouraging US macro news alleviated recession fears.
Although Iran continued to issue warnings against an imminent attack on Israel, no such action was undertaken. Amongst the latest developments, the Israeli Defense Ministry reportedly imposed sanctions on 18 oil tankers transporting Iranian oil to cut down Iran’s vital fuel sale revenues. Iran’s Supreme Leader Ayatollah Ali Khamenei issued a warning on Thursday against any form of retreat or compromise, invoking the concept of “divine wrath”.
Fed Minutes to stand out in the Jackson Hole Symposium week
With the inflation reports from both sides of the Atlantic now out of the way, Pound Sterling traders eagerly await the Minutes of the Fed’s July policy meeting for fresh cues on the interest-rate outlook.
The Fed Minutes will be reported on Wednesday. The first two days of the week are devoid of any significant economic news from the UK and the US. However, Atlanta Fed President Raphael Bostic’s speech on Tuesday could offer some trading impetus.
Thursday will feature the UK and the US S&P Global preliminary Manufacturing and Services PMI data while the usual US weekly Jobless Claims and Existing Home Sales data will be also eyed.
The three-day annual Kansas City Fed’s Jackson Hole Symposium will be held on Thursday, with key central banks’ officials likely to speak.
Fed Chair Jerome Powell is due to speak at the Symposium on Friday at 14:00 GMT, followed by BoE Governor Andrew Bailey’s speech at 19:00 GMT. Ahead of that the US New Home Sales will be published.
Sentiment around the central banks’ policy expectations will remain a key driving force in the week ahead, with traders also focused on the Middle East geopolitical escalation between Iran and Israel.
GBP/USD: Technical Outlook
Having defended the crucial 200-day Simple Moving Average (SMA), now at 1.2676, GBP/USD built a solid recovery from five-week lows of 1.2665.
In doing so, Pound Sterling buyers recorded a fresh two-week high just shy of the March 8 high of 1.2893 after recapturing the key 21-day SMA resistance at 1.2825 on a sustained basis.
With the 14-day Relative Strength Index (RSI) pointing north above the 50 level, currently near 56.50, the bullish potential remains intact for the British Pound.
If buyers manage to yield a weekly closing above the March 8 high of 1.2893 or the 1.2900 round figure, a fresh uptrend toward the 1.3000 psychological level cannot be ruled.
Next, the July high of 1.3045 will come into the picture, as buyers would aim for further upside to the 1.3100 level.
On the downside, the 21-day SMA resistance-turned-support at 1.2825 could come to the immediate rescue of buyers, below which the 50-day SMA at 1.2793 will be challenged.
On a sustained break of the 50-day SMA cap, additional declines could be seen toward the 1.2680 demand area, where the 100-day SMA and the 200-day SMA close in.
Thereafter, the June low of 1.2613 and the mid-May low at around 1.2510 will be the next bearish targets.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
The likelihood of a 50 bps Fed rate cut in September dropped to 25%.
US jobless claims fell last week to 227,000.
The USD/JPY outlook paints a bullish picture as the dollar trades near a two-week high against the yen after positive US sales data. Meanwhile, the rate-sensitive yen was weak as US Treasury yields rose amid a decline in Fed rate cut expectations. At the same time, the outlook for Bank of Japan rate hikes remained clouded due to political uncertainty.
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The US dollar made a solid bullish move on Thursday after US retail sales rose 1.0% in July. This increase was much bigger than the forecast of a 0.3% gain. Moreover, it showed that the US consumer was resilient. As a result, the likelihood of a 50 bps Fed rate cut in September dropped to 25%. Meanwhile, US Treasury yields rose, weighing on the yen.
Another report revealed that US jobless claims fell last week to 227,000, below forecasts for 235,000. The report reduced fears that the labor market was deteriorating. Low unemployment points to high demand and a tight market.
The upbeat US economic reports followed inflation data showing a moderate increase. As a result, the market is optimistic that the Fed might achieve a soft landing.
On the other hand, the yen was fragile on Friday amid political uncertainty in Japan. Prime Minister Fumio Kishida recently decided to step down, leaving a big gap. He greatly supported the Bank of Japan’s recent hiking cycle. Consequently, analysts believe the BoJ might pause until there is more political certainty before hiking interest rates.
USD/JPY key events today
There will be no key economic reports from the US or Japan, so investors will continue absorbing yesterday’s reports.
On the technical side, the USD/JPY price has made a sharp, bullish move, detaching from the 30-SMA and the 0.382 Fib level. At the same time, the RSI moved nearer the overbought territory, indicating solid bullish momentum.
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The price is approaching a solid barrier comprising the 150.03 resistance and the 0.618 Fib level. Since the bullish bias is strong, the price might soon breach this barrier to make new highs. Such a move would clear the path for bulls to revisit the 155.01 resistance.
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EUR/USD edges higher toward 1.1000 after posting losses on Thursday.
The pair could push higher in case risk flows dominate markets ahead of the weekend.
The US economic docket will feature consumer sentiment and housing data.
EUR/USD regains its traction and rises toward 1.1000 in the European session on Friday after snapping a three-day winning streak on Thursday.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Japanese Yen.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.64%
-0.97%
1.41%
-0.09%
-0.81%
-0.25%
0.40%
EUR
0.64%
-0.30%
2.06%
0.55%
-0.29%
0.39%
1.06%
GBP
0.97%
0.30%
2.63%
0.86%
0.01%
0.69%
1.35%
JPY
-1.41%
-2.06%
-2.63%
-1.47%
-2.26%
-1.64%
-1.04%
CAD
0.09%
-0.55%
-0.86%
1.47%
-0.77%
-0.16%
0.50%
AUD
0.81%
0.29%
-0.01%
2.26%
0.77%
0.68%
1.34%
NZD
0.25%
-0.39%
-0.69%
1.64%
0.16%
-0.68%
0.65%
CHF
-0.40%
-1.06%
-1.35%
1.04%
-0.50%
-1.34%
-0.65%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The upbeat macroeconomic data releases from the US provided a boost to the US Dollar (USD) and caused EUR/USD to turn south. The US Department of Labor reported that the weekly Initial Jobless Claims declined by 7,000 to 227,000 in the week ending August 9. Other data from the US showed that Retail Sales rose 1% on a monthly basis in July, beating the market expectation for an increase of 0.3%.
Early Friday, the improving risk mood makes it difficult for the USD to build on Thursday’s gains and helps EUR/USD stretch higher.
The US economic docket will feature Housing Starts and Building Permits data for July. Additionally, the University of Michigan will release the preliminary Consumer Sentiment Index data for August. The market reaction to these data is likely to remain short-lived.
Meanwhile, US stock index futures are up between 0.2% and 0.3% in the European session. In case Wall Street’s main indexes open in positive territory and continue to push higher ahead of the weekend, the USD could stay on the back foot and open the door for another leg higher in the pair.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart started to rise toward 60 after falling to 50 on Thursday, reflecting sellers’ hesitancy. On the upside, 1.1000 (psychological level, static level) aligns as immediate resistance ahead of 1.1050-1.1060 (static level) and 1.1100 (psychological level, static level).
Supports could be seen at 1.0960 (static level), 1.0940 (static level) and 1.0900 (psychological level, static level).
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
GBP/USD trades at its highest level in three weeks on Friday.
Technical buyers could remain interested in case the pair clears 1.2900.
The risk perception could drive the US Dollar’s valuation in the absence of high-impact data releases.
GBP/USD preserves its bullish momentum and trades at its highest level in three weeks slightly below 1.2900 in the European session on Friday. In the absence of high-impact data releases, the risk perception could impact the pair’s action in the second half of the day.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the Japanese Yen.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.63%
-1.04%
1.40%
-0.14%
-0.95%
-0.36%
0.47%
EUR
0.63%
-0.38%
2.03%
0.49%
-0.43%
0.27%
1.14%
GBP
1.04%
0.38%
2.68%
0.88%
-0.05%
0.65%
1.52%
JPY
-1.40%
-2.03%
-2.68%
-1.50%
-2.38%
-1.74%
-0.94%
CAD
0.14%
-0.49%
-0.88%
1.50%
-0.86%
-0.22%
0.62%
AUD
0.95%
0.43%
0.05%
2.38%
0.86%
0.70%
1.55%
NZD
0.36%
-0.27%
-0.65%
1.74%
0.22%
-0.70%
0.86%
CHF
-0.47%
-1.14%
-1.52%
0.94%
-0.62%
-1.55%
-0.86%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
On Thursday, the data from the US showed that the weekly Initial Jobless Claims declined by 7,000 to 227,000. Additionally, Retail Sales rose by 1% in July, surpassing the market expectation for an increase of 0.3%. Upbeat data releases provided a boost to the USD and caused GBP/USD to edge lower toward 1.2800.
As risk flows started to dominate the financial markets following the Wall Street’s opening bell on Thursday, however, GBP/USD regained its traction and closed the day in positive territory.
July Housing Starts and Building Permits data will be featured in the US economic calendar alongside the University of Michigan’s preliminary Consumer Sentiment Index for August. Investors are likely to ignore these figures and stay focused on the risk perception.
At the time of press, US stock index futures were up between 0.15% and 0.3%. A bullish opening in Wall Street could hurt the USD and allow GBP/USD to stretch higher. It’s also worth mentioning that profit-taking and week-end flows could cause inter-market correlations to weaken heading into the weekend.
GBP/USD Technical Analysis
1.2900 (Fibonacci 61.8% retracement of the latest downtrend) aligns as immediate resistance before 1.2950 (Fibonacci 78.6% retracement) and 1.3000 (psychological level, static level).
On the downside, first support is located at 1.2850-1.2840 (Fibonacci 50% retracement, 200-period Simple Moving Average (SMA)) ahead of 1.2800 (100-period SMA, Fibonacci 38.2% retracement) and 1.2760 (Fibonacci 23.6% retracement).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
USD/JPY edges lower on Friday and erodes a part of the overnight gains to a two-week top.
The divergent Fed-BoJ policy expectations turn out to be a key factor exerting some pressure.
The risk-on mood could undermine the safe-haven JPY and help limit any meaningful decline.
The USD/JPY pair struggles to build on the previous day’s breakout momentum and attracts fresh sellers on Friday, snapping a two-day winning streak to a nearly two-week high. The downtick is sponsored by a modest US Dollar (USD) downtick, though the prevalent risk-on environment could undermine the safe-haven Japanese Yen (JPY) and help limit deeper losses.
Investors turned optimistic after the US macro data published on Thursday showed that Retail Sales rose more than expected in July and a still resilient labor market, which eased fears about a possible recession in the world’s largest economy. In fact, the US Census Bureau reported that the total value of sales at the retail level in the US rose 1% in July and sales ex Autos grew 0.4%, beating estimates for an increase of 0.3% and 0.1%, respectively. Another report published by the US Department of Labor (DOL) revealed that there were 227K Initial Jobless Claims in the week ending August 10, lower than the 235K expected and the 234K previous.
Traders were quick to react and scaled back expectations for more aggressive policy easing by the Federal Reserve (Fed). The markets, however, still see a greater chance that the US central bank will begin its rate-cutting cycle in September. This, in turn, triggers a fresh leg down in the US Treasury bond yields and acts as a headwind for the USD. The JPY, on the other hand, draws support from the stronger second-quarter Gross Domestic Product (GDP) print from Japan on Thursday. This could encourage the Bank of Japan (BoJ) to continue raising interest rates, which, in turn, is seen exerting some pressure on the USD/JPY pair.
Nevertheless, the lack of any meaningful selling warrants some caution for bearish traders and before confirming that the recent sharp recovery from the 141.70-141.65 region, or the YTD low touched in July has run its course. Traders now look to the second-tier US macro data – Building Starts and Housing Permits, along with the Preliminary Michigan Consumer Sentiment Index – short-term opportunities later during the early North American session. The market focus, however, will remain glued to the FOMC meeting minutes, due for release next Tuesday, and Fed Chair Jerome Powell’s appearance at the Jackson Hole Symposium.
Technical Outlook
From a technical perspective, the overnight strong move up falters a resistance marked by the 38.2% Fibonacci retracement level of the July-August slump. The said barrier is pegged near the 149.35-149.40 region, which should now act as a key pivotal point for traders. A sustained strength beyond might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 150.00 psychological mark. The momentum could extend further towards an intermediate resistance near the 150.75-150.80 region en route to the 151.00 round figure and the 151.50-151.70 confluence – comprising the 200-day Simple Moving Average (SMA) and the 50% Fibo. level.
On the flip side, weakness below the Asian session low, around the 148.75-148.70 region, could find some support near the 148.20 area. This is closely followed by the 148.00 mark, below which the USD/JPY pair could accelerate the fall towards the 147.30-147.25 intermediate support en route to the 147.00 round figure and the 23.6% Fibo. level, around the 146.50-146.45 region. Failure to defend the said support levels might shift the near-term bias back in favor of bearish traders and prompt aggressive technical selling, paving the way for a slide towards the 146.00 mark, the 145.45 area and the 145.00 psychological mark.
