GBP/USD, Gold Forecasts: Two trades to watch

GBP/USD rises after stronger UK GDP data and amid USD weakness

GBP/USD is rising after stronger-than-expected UK GDP data and amid a weaker USD.

Data showed that UK GDP unexpectedly grew in August despite consumer spending falling. The UK economy grew 0.1% after expanding by 0.4% in July. This was better than the 0.1% contraction that was forecast and marks the fourth straight month that growth has beaten expectations.

On a three-month basis, GDP was up 0.7%. A 1.2% jump in manufacturing output helped drive growth in August. This marked the sector's strongest performance since November last year. Service sector activity was flat, though still better than expected.

The data points to resilience in the UK economy despite rising energy prices and tighter financial conditions. This boosts the case for the Bank of England to keep rates higher for longer.

However, it's also worth keeping in mind that this improvement in activity came before a resurgence in energy costs, which pushed oil prices above $100 a barrel. Higher energy prices could weigh on households and businesses, potentially slowing growth in the coming months.

The market is pricing in four rate hikes over the coming year, which seems aggressive given the risk that higher energy costs could weigh on economic activity.

The key question is whether this resilience can be sustained as higher energy prices feed through the economy. While stronger growth could give the Bank of England more room to keep rates higher for longer, a slowdown in the coming months could see markets scale back expectations for further tightening.

Separately, the U.S. dollar is under pressure, tracking Treasury yields lower. Yields are falling as a sell-off in tech stocks is driving a rotation into safe-haven bonds.

The USD is falling away from an 18-month high despite hotter-than-expected U.S. inflation data yesterday. For GBP/USD, the combination of UK rate expectations and a weaker U.S. dollar will remain key to the near-term outlook.

U.S. PPI figures and a speech by Federal Reserve Chair Kevin Warsh will be in focus today.

GBP/USD forecast – technical analysis

GBP/USD continues to consolidate between the 1.3200 support zone on the downside and 1.3280 horizontal resistance. The price remains below its 20, 50 and 200 EMAs, keeping the broader picture bearish.

However, sellers would need to break below the 1.3200 support zone in a meaningful manner. A spike through the level yesterday suggests that selling pressure at those lower levels remains weak, although further confirmation is needed.

A break below 1.3200 would bring 1.3100 into focus, ahead of 1.3000, the psychological level.

On the upside, buyers will need to overcome the 1.3280 obstacle to gain a firmer footing and bring 1.3340 horizontal resistance into play. A rise above here would expose the 50 EMA at 1.3350, before attention turns to the 200 EMA at 1.3400.

Gold rises as Treasury yields and USD ease. PPI up next.

Gold prices are rising on Thursday, rebounding from a weekly low hit in the previous session as the U.S. dollar eases and investors assess the chances of a Federal Reserve rate hike this month following hotter-than-expected inflation data.

U.S. inflation came in hotter than expected at 3.7%, and perhaps more concerningly, core inflation was also hotter than expected at 2.6%, suggesting that price pressures are broadening out. Following the data, markets are pricing in around a 32% chance of a rate hike this month, compared with 20% before the data release.

While the data fuelled a rally in the U.S. dollar, San Francisco Fed President Mary Daly said that the central bank would need to increase rates in the near term, although she saw no need for a hike at the October meeting. Michelle Bowman also supported the view that there was time to wait and see before further action.

This tempering of rate hike expectations and falling Treasury yields amid safe-haven flows into bonds has helped pull the U.S. dollar back from an 18-month high reached overnight, making gold more affordable for buyers using foreign currencies. Lower yields also boost demand for non-yielding assets.

However, the broader outlook remains challenging for gold. Persistent inflation could keep interest rates higher for longer, lifting the opportunity cost of holding a non-yielding asset.

Attention now turns to PPI data and retail sales figures due at 12:30 GMT. Strong data could add to rate hike expectations. Federal Reserve Chair Kevin Warsh is also due to speak early Friday morning at the IMF meeting in Thailand. While he may avoid giving explicit forward guidance, other closely watched Fed officials, including Christopher Waller and Beth Hammack, are also speaking and could provide further clues on the outlook for interest rates.

The market still sees an 85% probability of a Fed hike before the end of the year, which remains a headwind for non-yielding gold.

For now, gold is benefiting from the pullback in the U.S. dollar, but the broader outlook remains challenging while markets continue to price in further Fed tightening. A sustained recovery would likely require a more persistent decline in Treasury yields and the dollar, or a meaningful reduction in expectations for rate hikes. Otherwise, the current rebound could prove temporary.

Gold forecast – technical analysis

Gold continues to trade below its falling trend line and its 50 and 200 EMAs, keeping the technical picture bearish. However, $4,100 is proving to be solid support. The longer it holds, the stronger this level becomes.

Sellers would need to break below this support to create a lower low and bring $4,000 into focus, ahead of $3,940.

On the upside, buyers would need to rise above $4,200 to expose the 50 EMA at $4,260 and the 200 EMA at $4,300. A rise above these levels would improve the technical picture and turn attention towards $4,500.