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Abstract:GBP/USD is holding steady as traders wait for the UKs data dump which includes GDP and Industrial Production. This week, parliament may hold a debate
GBP/USD may be in the limelight this week as the UK prepares to release a cascade of economic data. The most eyed reports will likely be GDP, Industrial and Manufacturing Production. The overall trend of economic data out of the UK since October has been underperforming relative to expectations according to the Citi Economic Surprise Index. An anticipated debate in parliament on Friday may also move the British Pound.
Prime Minister Theresa May is negotiating with officials in Brussels and is not expected to present an agreed-upon deal to the House of Commons on February 13. Debates and votes on May‘s Brexit deal will likely take place the following day and could extend into the following week. The formatofthegathering will be similar to the one on January 29 when MP’s voted on amendments to the PMs Plan B.
This comes only a week after the Bank of England‘s (BoE) ’Super Thursday event which released the interest rate decision, quarterly inflation report and outlook. Rates remained unchanged as the central bank closely monitors the Brexit landscape. Forecasts for growth in 2019 were trimmed – again – from 1.7 percent to 1.2 percent. The BoE is maintaining a gradualist and cautious approach to accommodate the uncertainty associated with the current state of the Brexit negotiations.
GBP/USD in the meantime has been falling ever since it hit the 1.3199 resistance. The failure to breach past this point is likely a signal that underlying optimism lacks enough conviction to continue reaching higher. The pair appear to be flirting now with the upper bound of the September resistance range as the March 29 deadline approaches.
GBP/USD – Daily Chart
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The Japanese Yen rose 0.7% against the US Dollar after BoJ Governor Kazuo Ueda hinted at potential rate hikes. This coincided with a recovery in Asian markets, aided by stronger Chinese stocks. With the July FOMC minutes already pointing to a September rate cut, the US Dollar might edge higher into the weekend.
The Australian Dollar (AUD) traded sideways against the US Dollar (USD) on Tuesday, staying just below the seven-month high of 0.6798 reached on Monday. The downside for the AUD/USD pair is expected to be limited due to differing policy outlooks between the Reserve Bank of Australia (RBA) and the US Federal Reserve. The RBA Minutes indicated that a rate cut is unlikely soon, and Governor Michele Bullock affirmed the central bank's readiness to raise rates again if necessary to combat inflation.
JPY strengthened against the USD, pushing USD/JPY near 145.00, driven by strong inflation data and BoJ rate hike expectations. Japan's strong Q2 GDP growth added support. However, USD gains may be limited by expectations of a Fed rate cut in September.
Gold prices remain above $2,500, near record highs, as investors await the Federal Open Market Committee minutes for confirmation of a potential Fed rate cut in September. The Fed's dovish shift, prioritizing employment over inflation, has weakened the US Dollar, boosting gold. A recent revision showing the US created 818,000 fewer jobs than initially reported also strengthens the case for a rate cut.