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Futures data from September 17th: Spot gold prices surged above the 3,700 mark overnight, with COMEX gold futures rising 0.23% to $3,727.50 per ounce, and SHFE gold futures closing up 0.19%. Expectations of a Federal Reserve rate cut, a weakening dollar, and geopolitical uncertainty are all contributing to golds performance. Focus is on the Federal Reserves September meeting and the subsequent Quarterly Economic Projections (SEP). The US dollar continued to weaken on Tuesday, with the US dollar index falling 0.74% to a low of 96.54, hitting a near two-month low. Furthermore, the dollar fell 0.9% against the euro, reaching its lowest level since September 2021. Regarding economic data, US retail sales for August, released on Tuesday, rose 0.6% month-over-month, exceeding expectations of a 0.2% increase. The previous reading was revised from 0.5% to 0.6%, demonstrating resilience in consumer spending. The Federal Reserve held its meeting early Thursday morning, and a rate cut is all but certain. With the US Presidents newly nominated Fed Governor, Milan, participating in the FOMC meeting, the published dot plot is expected to show a more dovish tone, with the number of rate cuts for 2025 expected to fluctuate between two and three. Furthermore, continued pressure from the White House on Powell and other governors is crucial. Concerns about the Feds independence may continue to exacerbate market volatility.According to the Wall Street Journal: Eli Lilly (LLY.N) will invest $5 billion to build a factory in Virginia, USA.Japanese Ministry of Finance: Japans exports to the United States fell 13.8% year-on-year in August; exports to the European Union increased 5.5% year-on-year in August.Japans seasonally adjusted merchandise trade account in August was -150.125 billion yen, compared with expectations of -341.3 billion yen and the previous value of -303 billion yen.Japans annualized rate of merchandise imports in August was -5.2%, in line with expectations of -4.2%. The previous value was revised from -7.50% to -7.40%.

The GBP/USD has retested a multi-month low below 1.1700, despite hawkish signals from the options market

Daniel Rogers

Aug 29, 2022 14:42

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Despite bullish signs from the options market, Friday's continuation of the GBP/USD decline to a new low since March 2020 has GBP/USD leaning bearish near 1.1680.

 

Nonetheless, the GBP/USD one-month risk reversal (RR), which is the difference between call options and put options, recorded a four-day gain at Friday's end, peaking at 0.025. The RR value flips from negative -0.480 last week to positive 0.295 this week.

 

The recent aggressive language from the Fed and economic worries regarding the UK, especially in the context of political uncertainty, should have served as clues for the negative inclination.

 

Fed Chairman Jerome Powell said in his much-anticipated Jackson Hole speech on Friday that restoring price stability will take some time and involve "forceful" use of the central bank's tools. The policymaker also said that maintaining a restrictive approach for "some time" will be necessary to restore price stability.

 

Goldman Sachs expects a recession for the United Kingdom in Q4 2022, and lowers its GDP forecast for the year from 3.7% to 3.5% on a separate page. The US bank concludes in its latest report that the recession will be "very modest."

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