The past week has been marked by considerable market turbulence, driven by key inflation data, a decline in oil prices to their lowest levels since early 2023, and the first high-profile confrontation between Democratic presidential candidate Kamala Harris and Republican incumbent Donald Trump. The next week promises to be even more eventful. While numerous central banks are set to announce interest rate decisions, the Federal Reserve’s move will undoubtedly take center stage. Investors are eagerly anticipating the Fed’s first interest rate cut since 2020.
Gold
Gold has broken out of its 2480-2530 consolidation range and is experiencing significant gains ahead of the Fed's decision. However, it's worth noting that September is historically one of the weakest months for gold. For prices to decline, the Fed would need to cut rates by 25 basis points against current high odds for a 50 basis point cut. If the Fed signals more than three rate cuts this year, gold prices could continue to rise. The decision is due at 7 PM BST on Wednesday.
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The USDJPY pair has dropped to its lowest level since late December 2023, primarily driven by a weak US dollar, which had a significant impact on JAP225 contract. The Bank of Japan is expected to announce its interest rate decision next Friday, but its members will receive fresh CPI data just prior to the meeting. Despite this, expectations for another rate hike are low. If inflation comes in lower and the bank's communication is not overly hawkish, a Japanese equity market rally cannot be ruled out, along with a possible rebound of USDJPY currency pair.
GBPUSD
The GBPUSD pair has been steadily gaining since 2022, when parity seemed imminent. The UK economy has shown some improvement, and there has been a change of government recently. The rise in GBPUSD reflects the Bank of England's (BoE) a moderate stance on interest rates. The BoE cut rates in early August, its first move since August 2023. With inflation still elevated, another cut is not expected this Thursday. However, cuts are anticipated in November and December. Any communication regarding these plans could impact the pound in both ways.
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