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GBP/USD. The Pound Awaits a Key Report
The pound continues to struggle to find direction against the dollar. The pair is trading between the middle and upper lines of the Bollinger Bands on the D1 timeframe, that is, within the 1.3490–1.3580 range. Buyers continue to test the upper limits near 1.36, while sellers attempt to secure the price below 1.3500. However, as soon as the price approaches either boundary of the channel, traders lock in profits and the pair returns to prior levels.
Breaking out of this "vicious circle" will require a major trading catalyst to tip the balance in favor of either GBP/USD bulls or bears. That is why traders are now focused on the US CPI (to be published at the start of the US session on Thursday) and UK GDP (set for release on Friday). These releases could bring strong volatility—but only if the outcomes are divergent, for example, if US CPI favors the dollar but UK GDP falls short. Of course, the opposite scenario is possible as well.
According to preliminary forecasts, the UK economy will show a flat reading: the July GDP is expected to print at 0.0% m/m, compared to a 0.4% increase in June. On a quarterly basis, the British economy is expected to show weak growth of just 0.1% (down from 0.3% the previous month).
Other release components may also disappoint GBP/USD bulls. For example, industrial production and manufacturing output are both forecast to print at 0.0% m/m. The services sector activity index is expected to be at 0.3%, continuing its fourth consecutive monthly decline (for comparison, in March it was 0.7%).
If these indicators meet forecasts or fall into negative territory, the pound will come under pressure. However, in my view, such an outcome is unlikely to become a medium/long-term "anchor" for GBP, as other macro indicators (which we'll discuss below) suggest a wait-and-see approach, and soft results are already partly priced in.
On the other hand, if the UK economy delivers even a minimal upside surprise, the pound could gain and GBP/USD buyers could test resistance at 1.3580 (the upper Bollinger Band on D1).
Recent data show UK inflation rising and retail sales growing. The headline CPI m/m rose 0.1% (forecast: -0.1%). Year-on-year, headline CPI jumped to 3.8% (forecast: 3.7%), the highest since January 2024—a second straight month of gains. Core CPI also accelerated to 3.8% y/y (forecast: 3.7%), with this level last seen in April 2024. The retail price index accelerated to 4.8% (forecast: 4.6%), its strongest pace since February 2024. Services inflation also rose, reaching 5.0%.
Subsequent UK retail sales data also beat forecasts. Including fuel, sales rose 0.6% m/m (forecast: 0.2%) and 1.1% y/y (forecast: 1.3%). Excluding fuel, sales increased by 0.5% m/m (forecast: 0.4%) and 1.3% y/y (forecast: 1.2%).
If UK GDP beats expectations, it would harmoniously complement this favorable macro backdrop.
It is worth noting that most market analysts expect the Bank of England to keep rates unchanged through at least September and October. Prospects are less certain; for instance, Deutsche Bank allows for a rate cut in December. If the British economy shows relatively good results, dovish expectations will weaken further, and the pound will gain strength.
Technically, GBP/USD is between the mid and upper Bollinger Bands and above all Ichimoku lines (including the Kumo cloud). This setup favors longs, but, as mentioned, the 1.3580 upper Bollinger Band (D1) is a resistance "ceiling". So, as price approaches this level, caution is warranted—even if the macro setup would otherwise support further gains.
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Wall Street sets pace for Asia: Nikkei and KOSPI hit record highs
While US inflation continues to climb, elevated jobless claims are capturing more attention in the markets. Expectations for three rate cuts from the Federal Reserve this year are strengthening. The ECB held rates steady at 2% as anticipated. The Nikkei and KOSPI set new all-time highs, following Wall Street's lead. Oil prices stabilized, gaining more than $1 per barrel.
Global markets hit new records
On Thursday, the MSCI World Equity Index reached a historic peak. Meanwhile, US Treasury yields and the dollar fell on the back of expectations for imminent monetary easing. Weaker-than-expected labor market data outweighed concerns over higher inflation.
Inflation accelerates
August saw a marked uptick in consumer prices, with CPI rising 0.4% after a 0.2% gain in July—the fastest pace in seven months. The main drivers were a 0.4% increase in housing costs and a 0.5% rise in food prices. The cost of food at home jumped even higher, up 0.6%.
Rate cut expectations
Financial markets are now virtually certain the Fed will cut rates at its next meeting. The chance of a 0.25 percentage point reduction is priced at 100%, with only a 5% chance of a more aggressive 0.5-point move. Odds of an additional cut in October have jumped to 86% from 74% the previous day. The probability of another reduction in December has increased to 79% from 68%.
Wall Street sets new records
All three major US equity benchmarks closed at all-time highs:
Dow Jones Industrial Average: +617.08 points (+1.36%) to 46,108.00
S&P 500: +55.43 points (+0.85%) to 6,587.47
Nasdaq Composite: +157.01 points (+0.72%) to 22,043.08
MSCI hits new high
The MSCI World Equity Index climbed 6.92 points, or 0.72%, to 971.72—the second straight day the indicator set a new record.
Europe awaits further direction
The STOXX 600 in Europe finished up 0.6%. The European Central Bank, as expected, left its key rate at 2% and lowered its inflation forecast. However, there was no clear guidance on the regulator's next steps. Investors continue to look for more stimulus. Futures for the Euro Stoxx 50, FTSE, and DAX each rose 0.2%.
Currency market swings
The dollar index slipped 0.28% to 97.51. On the back of this, the euro gained 0.38% to 1.1738. The US dollar also slipped 0.21% against the yen to 147.15. The British pound gained 0.37% to 1.3579. Among emerging currencies, the Mexican peso rose 0.74% to 18.455 per dollar, and the Canadian dollar edged up 0.21% to 1.38 per US dollar.
Asia rides rally
On Friday, Asian equities took their cues from Wall Street. Traders are betting on rapid Fed rate cuts, which would lower global borrowing costs, boost bond markets, and ease the pressure from a strong dollar.
Asian exchange leaders
Stock indexes in Japan, South Korea, and Taiwan came close to all-time highs. China's equity market reached its highest in three and a half years, buoyed by expectations for stronger corporate earnings among AI-related firms.
Nikkei sets new record
Japan's Nikkei rose 1.0% to a new all-time high, with a 4.1% rally over the week. South Korea's KOSPI posted an even larger gain—up 1.3% on the day and nearly 6% for the week.
Chinese shares stabilize
China's CSI300 blue-chip index held steady at its highest level since early 2022. The broader MSCI Asia Pacific Index ex-Japan climbed 1.2%.
Currency movements persist
The dollar eased back to 147.40 yen, after briefly rising to 148.20 in the previous session. U.S. and Japanese financial officials reiterated that neither country will target exchange rates directly in policy decisions. The euro traded near 1.1728, supported by ECB comments confirming rates and a strong commitment to its current policy stance.
ECB policy in focus
Futures suggest only a 20% chance of an ECB rate cut in December, with around 60% of market participants convinced the central bank is nearing the end of its current cycle.
Oil under pressure
Oil prices snapped a three-day winning streak, falling by more than $1. Markets are concerned about weaker US demand and signs of oversupply, which outweigh risks of Middle East disruptions.
WTI crude retreated 2.04%, or $1.30, to $62.37 a barrel. Brent crude dropped 1.66%, or $1.12, closing at $66.37 a barrel.
Gold pulls back from records
After notching all-time highs earlier in the week, spot gold eased 0.13% to $3,635.83 an ounce. US gold futures fell 0.19% to $3,636.50.
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EUR/USD. Analysis and Forecast
The EUR/USD pair started the current week on a positive note, holding above the 1.1730 level. In the event of a pullback, the downward potential appears limited, given the divergence in expectations for European Central Bank and Federal Reserve policy, as well as ahead of key central bank events scheduled for this week.
As expected, last Thursday the ECB left interest rates unchanged, maintaining optimism about economic growth and inflation. In addition, the regulator emphasized that it would be guided by incoming data at its meetings, without making specific commitments in advance regarding the future path of rates. This approach reduced expectations of further borrowing cost cuts and supported the euro and EUR/USD.
As a result, traders lowered the probability of another ECB rate cut before spring to around 40%. This gives the euro an advantage over the Fed, which is expected to cut rates this week. The CME Group's FedWatch tool indicates more than a 90% probability of a 25 bp rate cut on Wednesday. These expectations weaken the U.S. dollar, creating a favorable backdrop for EUR/USD growth.
Even so, euro buyers remain cautious for now, preferring to wait for the outcome of the two-day FOMC meeting on monetary policy scheduled for Wednesday. Traders are focused on signals regarding the Fed's future course, which will determine the short-term movement of the dollar and have a significant impact on EUR/USD. In this context, fundamentals suggest that any pullback may offer a good opportunity to enter long positions.
Today, attention should be paid to speeches by ECB official Isabel Schnabel and ECB President Christine Lagarde.
From a technical perspective, oscillators on the daily chart are positive, prices are trading above the 9-day EMA, and the 9-day EMA is positioned above the 14-day EMA, which is currently aligned with the 1.1700 round level. This indicates a bullish outlook for the pair.
The nearest resistance is at the 1.1700 round level, above which the pair will reach a monthly high on the way toward 1.1800. Support lies at the 1.1700 round level, followed by 1.1685. The 50-SMA at 1.1660 will serve as the key pivot point.
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Gold has reached new all-time highs
Gold set a new record this week as traders and investors anticipate more dovish actions from the Federal Reserve, including further rate cuts in the coming months.
On Tuesday, the price of gold surpassed Monday's all-time high of about $3,685 per ounce, also supported by the US dollar dropping to its lowest level in over seven weeks. While this week's rate cut is already priced in, the Fed will also release its quarterly economic and rate projections—known as the "dot plot"—and Fed Chair Jerome Powell will hold a press conference after the decision.
The latest surge in the precious metal indicates growing uncertainty about global economic stability and rising inflation expectations. Investors, fearing depreciation in fiat currencies, are seeking a safe haven in gold, which is traditionally regarded as a store of value during turbulent periods.
The upcoming Fed rate decision is the key event this week, closely watched by market participants. Expectations of a dovish monetary policy—including a rate cut tomorrow and likely more to come—are fueling gold demand, since lower interest rates make alternative investments like bonds less attractive.
Beyond Fed expectations, other factors are also supporting gold's price growth. Geopolitical tensions, renewed military escalation in Israel, trade wars, and political instability in various regions of the world are all driving demand for safe-haven assets. In addition, active gold purchases by central banks in several countries are also supporting the ongoing uptrend.
Meanwhile, growing pressure from US President Donald Trump on the Fed—including his attempts to force Governor Lisa Cook's resignation—has further fueled demand for gold.
This year, gold has already risen more than 40%, outperforming major assets such as the S&P 500, and it recently exceeded its inflation-adjusted peak reached in 1980. Goldman Sachs Group Inc. predicts that the price of gold could approach $5,000 per ounce if even 1% of private Treasury holdings shift into the precious metal.
From a technical standpoint, buyers now need to overcome the nearest resistance at $3,705. This would open a path to $3,756, above which breaking higher will be quite challenging. The most distant target is the $3,813 area. If gold declines, bears will attempt to seize control at $3,658. If successful, a break below this range could deal a serious blow to the bulls and push gold to a low of $3,600 with the prospect of reaching $3,562.
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What to Expect from the Fed Today and How to Act
Today, Federal Reserve officials are expected to support the weakening U.S. labor market by cutting interest rates. This would mark a shift after months of holding back due to concerns about tariff-driven inflation.
Economists and analysts are watching the decision closely, as it could significantly affect the trajectory of the U.S. economy. A rate cut is expected to stimulate borrowing and investment, potentially leading to higher employment and stronger growth.
However, some experts are concerned about the potential long-term consequences of such a move. They argue that a return to lower interest rates could inflate asset bubbles and increase financial instability. Moreover, they warn that the cut might prove ineffective if businesses and consumers remain hesitant to borrow and spend amid ongoing economic uncertainty.
The policy shift comes under unrelenting pressure from President Donald Trump, who this week pushed for a larger cut. The political drama has also raised uncertainty about who would even participate in this week's policy meeting, although the lineup was likely finalized Monday evening when the Senate confirmed a new Fed governor.
Beyond the political intrigue, investors will focus on Chair Jerome Powell's remarks and the updated economic projections for insights into the likely path of interest rates in the coming months. Particular attention will be paid to the so-called dot plot — the chart showing individual forecasts of FOMC members regarding future rates. Significant divergences in these projections could highlight divisions within the Fed and add uncertainty to the markets.
Investors will also study the Fed's updated forecasts for inflation, GDP growth, and unemployment. Any major changes in these projections could strongly influence market expectations and investor behavior.
"Each cut will be more difficult than the last, unless the labor market shows further signs of deterioration," Bank of America analysts noted.
As mentioned earlier, Fed watchers see potential divisions over the expected quarter-point cut. Some officials may push for a deeper reduction, while others may prefer to keep rates unchanged. Ultimately, the debate centers on which concern outweighs the other: a labor market on the brink of sharp deterioration or accelerating inflation driven by tariffs.
Either way, if we don't see significant changes in policymakers' forecasts and today's cut is already priced in, the dollar could strengthen in the short term. But if most committee members adopt a more dovish outlook for the future—or worse, decide on a half-point cut—the dollar will likely fall against risk assets, including the euro and the British pound.
Technical Outlook for EUR/USD: Buyers now need to take control of the 1.1875 level. Only then can they aim for a test of 1.1910. From there, the pair could move toward 1.1940, though achieving this without support from large players will be difficult. The ultimate target lies at the 1.1985 high. On the other hand, meaningful buying interest is expected only around 1.1835. If absent there, it would be preferable to wait for a retest of 1.1790 or open long positions from 1.1750.
Technical Outlook for GBP/USD: Pound buyers need to break through nearby resistance at 1.3665. This would open the way toward 1.3710, above which further gains will be challenging. The furthest target is around 1.3745. If the pair declines, bears will attempt to take control of 1.3625. A break below this range would deal a serious blow to bulls and push GBP/USD toward 1.3590, with the potential to extend losses to 1.3550.
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