Last week’s August CPI report landed close enough to forecasts that it removed most of the uncertainty heading into this week’s Fed decision. Headline inflation held around 3.4% year on year and 0.4% month on month, broadly in line, while core inflation ticked up slightly against consensus, holding its year on year rate near 2.4%. That was enough to keep the market implied probability of a Fed hike this month elevated, and with the decision now falling this week rather than being a future event to price, attention has shifted fully onto the guidance that comes with it rather than the hike itself.
The bigger story for this week, though, is how crowded the calendar has become. Beyond the Fed on Wednesday, UK data starts the gauntlet on Tuesday with jobs figures, followed by UK CPI on Wednesday morning and the Bank of England’s own rate decision on Thursday, where a 3 to 6 vote split is expected to keep the bank rate on hold at 3.75%. Friday then brings a tentative Bank of Japan decision, with markets weighing whether the BOJ pushes its policy rate above 1.00% for the first time in this cycle. Three central banks, one week, and two of Connor’s core pairs sitting right on key structural levels heading into it.
GBP/USD: A UK Data Gauntlet Collides With the Fed and the BOE
Chart: GBP/USD, Daily timeframe (TradingView, SMC)
The daily chart shows cable working through a clean multi week cycle. A sequence of breaks of structure carried GBP/USD from a low near 1.3420 in early August up through equal lows and a change of character near 1.3560, on to a weak high just above 1.3680 by 21 August. A bearish change of character off that high, confirmed through equal lows around 1.3620, triggered a break of structure back down through 1.3600 and 1.3580. A brief equal highs and change of character bounce carried price back to around 1.3560 in the first week of September, but that recovery has since rolled over, and GBP/USD now sits at 1.3506, right at the top of a key demand zone.
Overhead, the 1.3600 to 1.3620 zone is the first resistance, with the deeper 1.3640 to 1.3660 supply zone and the 1.3680 weak high the major ceiling further out. Below current price, the 1.3480 to 1.3500 zone is the immediate demand area being tested right now, with the deeper 1.3420 to 1.3460 zone the next real support if that fails to hold.
This week is unusually busy for the pound. Tuesday’s jobs data is expected to show claimant counts rising again after last month’s sharp drop, with wage growth easing slightly, before Wednesday’s UK CPI, expected to tick up to around 3.1% year on year from 2.9%, complicates the picture the BOE has to navigate on Thursday, where a hold at 3.75% is the expected outcome. Layered on top of all of that is Wednesday evening’s Fed decision, where a 25 basis point hike to 4.00% is priced in, meaning the dollar side of the pair may end up mattering just as much as anything coming out of the UK.
Gold: Bearish Structure Meets the Biggest Fed Decision of the Year
Chart: Gold (XAUUSD), Daily timeframe (TradingView, SMC)
Gold’s daily chart tells the story of a sharp reversal. A bullish change of character off a base near 4,120 in late July kicked off a strong run of breaks of structure through 4,300 and 4,480, carrying price all the way to a weak high just above 4,720 by 25 August. A bearish change of character confirmed there triggered a heavy break of structure lower, and although an equal highs and change of character bounce lifted price back toward 4,480 in the first days of September, that recovery failed, and a fresh break of structure has since carried gold down through the 4,400 to 4,440 zone to its current level of 4,329.72.
Overhead, the 4,400 to 4,440 zone that price just broke below is now the first resistance to reclaim, with the deeper 4,640 to 4,680 supply zone and the 4,720 weak high the major ceiling further out. Below current price, the 4,240 to 4,280 zone is the next real demand area if the current low fails to hold.
Wednesday’s Fed decision is the standout catalyst for gold this week. With a 25 basis point hike to 4.00% close to fully priced, it is the statement’s tone and Warsh’s press conference that will decide the metal’s next move rather than the hike itself. A hawkish read would likely keep gold pressured toward the 4,240 to 4,280 zone, while any dovish surprise could spark a sharp recovery back toward 4,400. Friday’s tentative BOJ decision, where a hike above 1.00% is on the table, adds a further source of volatility into the same week, particularly for cross asset flows into safe havens.
Key Events This Week
Tuesday 15 September UK Claimant Count and Average Earnings
UK jobs data kicks off the week’s data gauntlet, with the claimant count change expected to rise by around 8,300 after last month’s sharp 11,000 drop, and average earnings growth expected to ease to around 3.9% from 4.1%. A softer labour market reading would add to the case for the BOE staying on hold on Thursday.
Wednesday 16 September UK CPI, US Retail Sales, and the Fed Decision
A packed session. UK CPI is expected to tick up to around 3.1% year on year from 2.9%, complicating the BOE’s job two days later, while US retail sales earlier in the day give a read on the consumer heading into the Fed. The Fed’s own decision, along with updated economic projections, lands in the evening, with a 25 basis point hike to 4.00% priced in. As with most fully priced decisions, it is the statement and Warsh’s press conference, not the hike itself, that are likely to set the tone for the dollar, yields, and gold into the rest of the week.
Thursday 17 September Bank of England Rate Decision
The BOE’s Monetary Policy Committee is expected to vote 3 to 6 to hold the bank rate at 3.75%, alongside the accompanying monetary policy summary. With UK CPI having just ticked higher a day earlier, any dissent toward a hike, or language suggesting the hold will not last much longer, could give the pound a lift regardless of how the Fed landed the night before.
Friday 18 September Bank of Japan Decision (Tentative)
The BOJ’s decision is tentatively scheduled, with markets weighing whether the policy rate moves above 1.00% for the first time this cycle, alongside UK retail sales and further comments from ECB President Lagarde. A hawkish surprise from the BOJ would be the wildcard risk event of the week, with the scope to ripple through yen crosses and safe haven flows including gold heading into the weekend.
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