GBP/USD could revisit 1.25 as US recession confirmed
- Recession confirmed for US economy
- Forget about hattrick of 75bp hikes from Fed
- BoE could deliver 50 bp hike next week
- GBP/USD path of least resistance to upside
The big macro news today was that from the US where the first estimate of the second quarter GDP confirmed the US was in a recession. Although the dollar fell against some currencies, most notably the yen, it held its own relatively well against the euro and pound, although I reckon it is only a matter of time before these currencies also find some buying interest.
US recession confirmed
Contrary to expectation of +0.5%, US second quarter GDP came in at an annual rate of -0.9%, which thus confirmed the US was in a recession after output had fallen by 1.6% in Q1, sending both gold and silver sharply higher. Gold prices rallying was a straight-forward reaction in response to the disappointing data, as bond yields slumped.
The greenback fell from its earlier highs, most notably against the Japanese yen and Swiss franc, although other currencies struggled.
Forget about hattrick of 75bp hikes from Fed
The US GDP data has re-affirmed my view that the Fed will have to slow down the pace of the hikes and potentially go in reverse in early 2023. After all, that is what the Fed chair had implied the day before. Powell indicated at the FOMC press conference on Wednesday that the pace of interest rates hikes will slow, and that future hikes will depend on incoming data. “While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data,” Powell said.
Well, GDP was quite poor, so there won’t be a hattrick of 75 basis point hikes in September, that’s for sure.
Against this backdrop, gold should be able to find buyers on the dips, given how much it has fallen already this year. In FX, I reckon we will see the likes of GBP and EUR, currencies that have performed very poor so far this year, stage a recovery against the greenback – especially if we see further evidence of a struggling US economy.
Could BoE finally deliver 50 bp hike?
The GBP/USD will be in the spotlight in the next week and a half as we look forward to a busy week for both the pound and dollar in the week ahead. The Bank of England’s “steady as she goes” approach to interest rate hikes (25 basis points) has been heavily criticized as inflation in the UK surged to new 40-year high of 9.4%. Will it finally join the rest of central banks with a bigger hike of 50 basis points this time on Thursday?
If it does, then expect the GBP/USD to climb towards mid-1.20s, possibly reaching 1.2500 by Friday, especially if we also see further weakness in US macro data as well.
GBP/USD path of least resistance to upside
After breaking out of a falling wedge pattern to the upside, the GBP/USD was up for the second consecutive week, at the time of writing. The short-term path of least resistance was therefore to the upside.
As such, I am expecting the GBP/USD to climb higher. Short-term support at 1.2090 needs to hold on a daily closing basis to keep the bulls happy.
The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.
Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
Contracts for Difference (CFDs) are not available to US residents.
FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of Stonex Group Inc.
Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.
© FOREX.COM 2025