- Weaker-than-expected economic data in China threatens to derail economic growth and trigger risk aversion.
- Federal Reserve pressured by Solid US economic data released since last Friday and US inflation data looming.
- GBP/USD: Remains upward biased, could test Tuesday’s high of 1.2269 ahead of 1.2300.
The British Pound (GBP) turned positive despite overall risk aversion triggered by China’s exports weakening. Additionally, the latest headlines involving Russian President Vladimir Putin, saying that “the threat of nuclear war is increasing,” bolstered the US Dollar (USD), giving another leg-down to the GBP/USD pair. Nevertheless, the Sterling has recovered, and the GBP/USD is trading at 1.2215, above its opening price, after reaching a high of 1.2226.
Exports in China plunged, sparking global recession fears
Sentiment remains deteriorated after China’s Trade Balance data weakened, showing that Exports plunged 8.7% YoY, below estimates of 0.3% contraction. Economic data since the second half of the last week from the United States (US) showed that the labor market remains tight and that wages are rising, a signal that is not going to be liked by Federal Reserve (Fed) Chair Jerome Powell. Given that Powell’s speech last Wednesday gave the green light to lower interest rate hikes, further inflation data to be revealed this Thursday with the Producer Price Index (PPI) and next week’s Consumer Price Index (CPI) would be crucial to assess the following week’s rate hike by the Federal Reserve.
The lack of economic data on the United Kingdom (UK) front keeps the Pound Sterling adrift to US Dollar dynamics. However, it appears that the political drama spurred during the premiership of Lizz Truss has abated so far, due to a fiscally responsible budget, by the new Prime Minister Rishi Sunak. Nevertheless, it should be said that the UK economy is “likely” already in recession, and a gloomy outlook with labor shortages, wage inflation, Brexit jitters, and weak investment, could hurt the prospects for higher GBP/USD spot prices.
In the next week, the Federal Reserve and the Bank of England are expected to raise rates by 50 bps, leaving interest rates differentials unchanged. What could rock the boat is the Summary of Economic Projections (SEP) released by the Fed, which will update Fed officials’ projections for the Federal Fund rates (FFR). A higher peak for the FFR would be hawkish and could spur US Dollar strength towards the end of 2022.
GBP/USD Price Analysis: Technical outlook
The GBP/USD daily chart suggests the pair remains upward-biased after bouncing off the 200-day Exponential Moving Average (EMA) at 1.2104. Geopolitical headlines linked to Putin and nuclear war issues spurred a flight to safety, but nerviosism faded as the GBP/USD approaches Tuesday’s high of 1.2269. Therefore, the GBP/USD next resistance level would be 1.2269, followed by the psychological 1.2300. As an alternate scenario, the GBP/USD first support would be 1.2200, followed by the 200-day EMA at 1.2104 and the 20-day EMA at 1.2048.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD consolidates weekly gains above 1.1150
EUR/USD moves up and down in a narrow channel slightly above 1.1150 on Friday. In the absence of high-tier macroeconomic data releases, comments from central bank officials and the risk mood could drive the pair's action heading into the weekend.
GBP/USD stabilizes near 1.3300, looks to post strong weekly gains
GBP/USD trades modestly higher on the day near 1.3300, supported by the upbeat UK Retail Sales data for August. The pair remains on track to end the week, which featured Fed and BoE policy decisions, with strong gains.
Gold extends rally to new record-high above $2,610
Gold (XAU/USD) preserves its bullish momentum and trades at a new all-time high above $2,610 on Friday. Heightened expectations that global central banks will follow the Fed in easing policy and slashing rates lift XAU/USD.
Week ahead – SNB to cut again, RBA to stand pat, PCE inflation also on tap
SNB is expected to ease for third time; might cut by 50bps. RBA to hold rates but could turn less hawkish as CPI falls. After inaugural Fed cut, attention turns to PCE inflation.
Bank of Japan set to keep rates on hold after July’s hike shocked markets
The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.