GBP/USD eases from daily top amid modest USD bounce from one-week low, holds above 1.1400

GBP/USD gains some positive traction on Tuesday, though the uptick lacks bullish conviction.

A goodish USD rebound from a one-week low turns out to be a key factor capping the upside.

Any meaningful downfall seems unlikely ahead of the FOMC and the BoE meetings this week.

The GBP/USD pair builds on the previous day's recovery move from the vicinity of mid-1.1300s, or its lowest level since 1985 and edges higher through the first half of trading on Tuesday. The pair stick to modest intraday gains through the early European session, though seems to struggle to capitalize on the move beyond mid-1.1400s and retreats a few pips from the daily peak.

A combination of factors assists the US dollar to attract some dip-buying following an early slide to a one-week low, which, in turn, acts as a headwind for the GBP/USD pair. Expectations that the Federal Reserve will stick to its faster rate-hiking cycle to tame inflation remain supportive of elevated US Treasury bond yields. In fact, the US central bank is widely expected to deliver another supersized 75 bps rate hike at the end of a two-day meeting on Wednesday.

Furthermore, the markets have been pricing in a small chance of a full 100 bps liftoff, which remains supportive of elevated US Treasury bond yields. The yield on the rate-sensitive two-year US government bond rose to its highest level since November 2007 and the 10-year Treasury note reached a level not seen since April 2011 on Monday. Apart from this, growing recession fears lend support to the safe-haven greenback and also contribute to capping the GBP/USD pair.

Market participants also seem reluctant to place aggressive bullish bets around the British pound amid a bleak outlook for the UK economy. This, to a larger extent, overshadows the prospects for more aggressive rate hikes by the Bank of England, which, so far, has failed to impress bulls or provide any meaningful impetus to the GBP/USD pair. The downside, however, seems cushioned as traders might prefer to move to the sidelines ahead of the key central bank event risks.

The Fed is scheduled to announce its monetary policy decision at the end of a two-day meeting on Wednesday. This will be followed by the BoE meeting on Thursday, which should help determine the next leg of a directional move for the GBP/USD pair. In the meantime, traders on Tuesday might take cues from the US housing market data, which along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the major.

From a technical perspective the pair continues to rest on strong support from a the base of a multi-month falling channel at around the mid 1.13s, and it would require a daily close or open below the lower channel line for an acceleration of the bear trend. In the meantime – and prior to the main event risk of Wednesday's Fed meeting – traders are likely to content themselves with playing the bounce off this key support, scalping short runs as the market revolves.  

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GBP/USD: Charts point to a test of the all-time low at 1.0520 – BBH

Sterling is underperforming after weak retail sales data and traded near 1.1350, the lowest since 1985. Economists at BBH note that the GBP/USD pair could plummet to the all-time low at 1.0520.

Sterling pounded on anniversary of Black Wednesday

“Headline sales fell -1.6% MoM vs. -0.5% expected and a revised 0.4% (was 0.3%) in July, while sales ex-auto fuel also fell -1.6% MoM vs. 0.4% in July. As a result, the YoY rates fell to -5.4% and -5.0%, respectively. The data confirm what we all know already, and that is the economy is sliding into recession. How long and how deep this downturn will remain a great source of debate.”

“We would be remiss if we did not mention that today is the anniversary of Black Wednesday. Thirty years ago, sterling was unceremoniously ejected from the Exchange Rate Mechanism. Cable is marking the occasion by trading at its weakest level since 1985 near 1.1350. There is literally nothing in the charts until the February 1985 all-time low near 1.0520.”

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ECB's Centeno: No sign of inflation expectations de-anchoring

European Central Bank (ECB) Governing Council member Mario Centeno said on Thursday that he does not see any signs of a de-anchoring of inflation expectations, per Reuters.

"The monetary policy must act at the margin in as small steps as possible," Centeno added and further noted that he expects the effects of unprecedented supply shocks to ease.

Market reaction

These comments don't seem to be having a significant impact on the shared currency's performance against its major rivals. As of writing, EUR/USD was up 0.15% on the day at 0.9991.

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Gold Price Forecast: XAU/USD remains poised to test $1,688 key support

Gold price is licking its wounds near $1,700 after Tuesday’s sharp sell off.

The US dollar retreats amid a USD/JPY slide and a pause in the yields rally.

XAU/USD looks south amid a wall of powerful resistance levels.

Gold price is consolidating the previous sell off, as bears are taking a breather before resuming the next leg lower. A pause in the US Treasury yields rally combined with a broad US dollar retreat is offering a temporary reprieve to gold buyers. The bright metal remains vulnerable amid the revival of hopes for aggressive Fed tightening in the coming months. The US inflation data outpaced estimates and squashed the ‘peak inflation’ narrative, suggesting that the Fed will continue with bigger and more rapid rate hikes to control inflation. According to the CME FedWatch Tool, markets are now pricing a 36% chance of a full percentage point Fed rate hike next week. Attention now turns towards the US key events in the second half of the week for fresh trading opportunities in the bullion.

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is eyeing a firm break below the SMA5 four-hour at $1,702 to resume the bearish momentum towards the previous day’s low of $1,697.

Bears will then gear up for a test of the previous week’s low of $1,691, below which the convergence of the pivot point one-day S1 and Bollinger Band one-day Lower at $1,688 will be put at risk.

On the flip side, strong resistance is seen around $1,707, the confluence of the Fibonacci 61.8% one-week and the Fibonacci 23.6% one-day. Acceptance above the latter is needed to offer a fresh boost to XAU bulls.

The next relevant upside target is aligned at $1,710, the meeting point of the Fibonacci 38.2% one-day and SMA10 one-day. Further up, the intersection of the SMA5 one-day and the Fibonacci 38.2% one-week at $1,715 will be the level to beat for bulls.

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 Breaking: US annual CPI inflation declines to 8.3% in August vs. 8.1% expected

The US Bureau of Labor Statistics reported this Tuesday that inflation, as measured by the Consumer Price Index (CPI), decelerated to 8.3% on a yearly basis in August from 8.5% in the previous month. The reading was slightly above consensus estimates pointing to a decline to 8.1%. 

The Core CPI, which excludes volatile food and energy prices, rose by 0.6% in August (0.3% anticipated) and climbed to 6.3% on yearly basis, up from 5.9% in July and 6.1% expected.

Follow our live coverage of the market reaction to US inflation data.

Market reaction

The US dollar catches aggressive bids in reaction to the stronger-than-expected CPI report and for now, seems to have stalled its recent sharp pullback from a two-decade high touched last week.

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Gold Price Forecast: XAU/USD jumps closer to Friday’s swing high amid notable USD supply

• Gold catches fresh bids on Monday and turns positive for the second successive day.
• The prevalent USD selling bias turns out to be a key factor boosting the commodity.
• A positive risk tone, the prospects for more aggressive central banks continue to cap.

Gold attracts some dip-buying near the $1,712 area on Monday and turns positive for the second straight day. The XAU/USD refreshes its daily high, around the $1,726-$1,727 region during the European session and moves back closer to a one-and-half-week high touched on Friday.

The US dollar extends last week's sharp retracement slide and remains under intense selling pressure on the first day of a new week. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, dives to a fresh monthly low and offers support to the dollar-denominated gold.

Given that the markets have already priced in a 75 bps Fed rate hike move in September, subdued action around the US Treasury bond yields turns out to be a key factor weighing on the greenback. Apart from this, growing worries about a deeper global economic downturn further contribute to driving flows towards safe-haven gold.

That said, a positive risk tone - as depicted by a generally upbeat mood around the equity markets - could act as a headwind for the precious metal. Furthermore, the prospects for a more aggressive policy tightening by major central banks warrant some caution before positioning for any further appreciating move for the non-yielding gold.

Investors might also prefer to move to the sidelines ahead of the latest US consumer inflation figures, due for release on Tuesday. The crucial US CPI report will influence the Fed's policy outlook and dictate the near-term USD trajectory. This, in turn, will help investors to determine the next leg of a directional move for gold.

In the meantime, the XAU/USD is more likely to enter a consolidation phase amid absent relevant market-moving economic data from the US. That said, the US bond yields, the USD price dynamics, along with the broader risk sentiment, might still provide some impetus to gold and allow traders to grab short-term opportunities.

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Malaysia: BNM hikes rates again – UOB

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group review the latest interest rate decision by the BNM.

Key Takeaways

“As widely expected, Bank Negara Malaysia (BNM) raised the Overnight Policy Rate (OPR) today (8 Sep) by 25bps to 2.50%. This marks the third back-to-back rate hike since BNM started the hiking cycle in May this year as the economy recovered at a stronger pace. To date, BNM has hiked 75bps, which partly reversed the 125bps of rate cuts since the start of the pandemic in Jan 2020.”

“In the latest monetary policy statement (MPS), BNM continues to expect the domestic economy to expand, supported by private sector spending amid the transition to endemicity, positive labour market conditions, resumption of tourism activities and investments. However, BNM cautioned that external demand is expected to moderate amid softer global growth. BNM expects inflation to peak in 3Q22 before moderating thereafter amid abating base effects and easing global commodity prices.”

“BNM highlighted that there is no ‘pre-set course’ and the monetary policy committee (MPC) will continue to assess developments and their impact on domestic inflation and growth. BNM also reiterated that any adjustments will be done in a ‘measured and gradual’ manner. We think BNM may have signalled a temporary pause for rate hikes pending forward-looking growth and inflation dynamics. As such, we maintain our OPR target at 2.50% by year-end, and 3.00% by mid-2023. The next and final monetary policy meeting for the year is on 2-3 Nov.”

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