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.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.