Gold (XAU/USD) breaks to a new record high near $2,610 on Friday on heightened expectations that global central banks will follow the Federal Reserve (Fed) in easing policy and slashing interest rates. Lower interest rates are positive for Gold, as they reduce the opportunity cost of holding the non-interest-paying asset, making it more attractive to investors.

Following Wednesday’s Fed decision, the South African Reserve Bank (SARB) cut its key interest rate by 25 basis points (bps) on Thursday – the first cut since the Covid pandemic in 2020. The Central Bank of the Philippines cut interest rates by 250 bps to 7.0% at its meeting on Friday. The Reserve Bank of India (RBI) is now also widely expected to slash interest rates in sympathy with the Fed when it next meets.

Although the People’s Bank of China (PboC) kept its key lending rates unchanged at the September fixing on Friday, the one and five-year loan prime rates lie at record lows of 3.35% and 3.85%, respectively, after the bank made a surprise cut in July. The Bank of Japan (BoJ), meanwhile, left rates unchanged at its meeting on Friday, despite some speculation of a rate hike in the offing.  

Gold breaks above previous record highs

Gold is breaking above the previous record highs set on Wednesday of $2,600 following the Fed’s decision. At this meeting, the US central bank decided to cut interest rates by a double-dose of 50 pbs (0.50%). 

The upside for the yellow metal was capped, however, by the Fed’s broadly positive outlook for US growth, which the central bank saw remaining stable at about 2.0% per year until the end of 2027. This suggested a “soft landing” profile for the economy, which is broadly positive for sentiment. However, this was probably negative for the safe-haven Gold. Thus, the precious metal quickly fell after peaking.

At the same time, increased geopolitical risk aversion might be generating supportive safe-haven flows. Israel’s use of exploding pagers and walkie-talkies to eliminate and injure Hezbollah agents in Lebanon has increased the risk of an escalation in the Middle East conflict, potentially supporting the precious metal. 

Technical Analysis: Gold makes new high as uptrend extends

Gold has broken through to new highs on Friday, above the previous record high of $2,600 set after the Fed meeting on Wednesday. 

The technical analysis dictum says that “the trend is your friend,” which means the odds favor more upside for the yellow metal in line with the dominant long, medium, and short-term uptrends. 

XAU/USD Daily Chart

The next targets to the upside are the round numbers: $2,650 first and then $2,700. 

Gold is still not quite overbought, according to the Relative Strength Index (RSI) in the daily chart above, which also leaves room for more upside. 

In the event that Gold’s RSI enters the overbought zone on a closing basis, however, it will advise traders not to add to their long positions. 

If it enters and then exits overbought, it will be a sign to close longs and sell, as it would suggest a deeper correction is in the process of unfolding.   

If a correction evolves, firm supports lies at $2,550, $2,544 (0.382 Fibonacci retracement of the September rally), and $2,530 (former range high). 

Source: FXSTREET

The GBP/JPY cross turns positive for the fifth successive day following an intraday dip to the 188.70 area and jumps to a nearly three-week top during the first half of the European session on Friday. Spot prices reclaim the 191.00 mark in the last hour amid the emergence of some selling around the Japanese Yen (JPY), triggered by the Bank of Japan (BoJ) Governor  Kazuo Ueda's less hawkish remarks during the post-meeting press conference. 

In fact, Ueda noted that uncertainties surrounding Japan's economy, and prices remain high and that risks of inflation overshoot have diminished to some extent in the wake of the recent FX moves. This, along with the underlying bullish sentiment across the global financial markets, undermines the safe-haven JPY. Meanwhile, the British Pound (GBP) draws support from the Bank of England's (BoE) decision on Thursday to keep rates unchanged and run down its stock of government bonds by another £100 billion over the coming 12 months. This, in turn, provides an additional boost to the GBP/JPY cross and contributes to the move up. 

From a technical perspective, oscillators on the daily chart have been gaining positive traction and support prospects for a further appreciating move. That said, the 50-day Simple Moving Average (SMA) has fallen below the 200-day SMA, forming the 'Death Cross' pattern on the daily chart and warranting some caution for bullish traders. Hence, any subsequent move up might confront stiff resistance near the 50-day SMA, currently near the 191.75 region. This is followed by the 192.00 mark, above which the GBP/JPY cross could climb further, though is likely to remain capped near the 200-day SMA barrier near the 192.35-192.40 region. 

On the flip side, the 190.40-190.35 zone now seems to protect the immediate downside ahead of the 190.00 psychological mark and the 189.45 horizontal support. Some follow-through selling could drag the GBP/JPY cross towards the 189.00 mark en route to the daily swing low, around the 188.70-188.65 region. Failure to defend the said support levels will suggest that this week's goodish rebound from the vicinity of the monthly low has run its course and pave the way for deeper losses. Spot prices might then accelerate the fall towards the 188.00 round figure before eventually dropping to the 187.35 support zone and the 187.00 mark.

Source: FXSTREET

Above: GBP/EUR (top) and GBP/USD at five-minute intervals.

Source: Poundsterlinglive

UK retail sales picked up pace in August, as consumers’ desire to take advantage of sunny weather and summer discounts offset gathering political and fiscal anxieties. The volume of goods sold in stores and online increased 1% after shoppers splashed out on food and clothing, the Office for National Statistics (ONS) said on Friday. The reading, which was stronger than the 0.4% increase expected by economists, follows a revised gain of 0.7% in the previous month. 

“Retail sales rose in August as warmer weather and end-of-season promotions helped to boost sales, most notably for clothing and food shops,” ONS chief economist Grant Fitzner said. “Retail sales have also increased across the three-month and annual period, following strong growth from online retailers.”

The figures suggest British consumers were optimistic in August despite a wave of anti-immigrant riots that gripped parts of England earlier in the month and Prime Minister Keir Starmer’s warnings of tough fiscal decisions ahead. Separate data released earlier on Friday showed consumer confidence turning negative in September, which research firm GfK attributed to concerns about the Labour government’s tax and spending plans. 

“While consumers are showing a willingness to spend on essential and semi-discretionary categories, consumer confidence has dropped likely reflected in deferring the purchase of big-ticket items,” said Tom Youldon, a partner at McKinsey.

Nonetheless, households have seen wages grow faster than prices in recent months, while inflation for some staple goods like clothing and food cool down. Sunny weather also boosted food sales, which recorded their biggest annual jump since 2021.

The pound extended gains after the data, rising as much as 0.2% to US$1.3313 (RM5.62), near the highest level since March 2022. The currency got a boost on Thursday after the Bank of England held interest rates unchanged and warned investors it won’t rush to ease monetary policy, contrasting with a more dovish approach from the US Federal Reserve earlier this week.

Sales volumes rose 2.5% in the year to August, the largest annual gain since February 2022. Overall, volumes have almost recovered back to pre-Covid levels seen in February 2020. 

Sunny weather boosted food sales, which recorded the biggest annual jump since 2021, while clothing sales also saw a strong increase thanks to end-of-season discounts. At the same time, non-store retailing, which includes online shopping, fell 1.7% on the month.

“The sharp pickup in retail sales in August leaves it on course to provide support to headline GDP growth in 3Q. While the cooling of sentiment indicators raises the risk that momentum will ease in the near term, our base case is that positive real wage growth continues to bolster spending in the quarters ahead. The prospect of healthy consumer demand is likely to keep the Bank of England cautious about how quickly it lowers interest rates,” said Dan Hanson, chief UK economist at Bloomberg Economics. 

Temperatures were above average across the country in August, according to the Met Office. Aug 12 was the hottest day of the year to date, with temperatures of 34.8°C (95°F) recorded in Cambridge. 

British retailers Ocado and Next lifted their sales outlook for the rest of this year after a stronger-than-expected third quarter. Next said shoppers are already spending on Autumn clothing and buying more full-price items.

Separate figures from the British Retail Consortium showed retail sales recorded their strongest growth since March. Consumers are still indulging in small luxuries, helping fuel a bounce back in card spending in August after two months of declines, according to Barclays.

“If inflation continues to hover close to the 2% mark, consumers may start to experience a modest increase in purchasing power over the crucial golden quarter,” Youldon said. “But with higher energy bills on the horizon from October, many will be mindful of making discretionary purchases and continue to look for opportunities to trade down.”

Source: Theedgemarkets

NZD/USD continues its winning streak for the third successive day, trading around 0.6250 during the early European hours on Friday. The New Zealand Dollar (NZD) gains ground following the interest rate decision by the People’s Bank of China (PBoC).

The PBoC opted to keep its one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively. As close trade partners, any developments in the Chinese economy can significantly impact Kiwi markets.

In New Zealand, recent data showed that the Gross Domestic Product (GDP) shrank by 0.2% quarter-on-quarter in the second quarter, bringing the economy close to recession. This decline was smaller than the anticipated 0.4% contraction. Year-on-year, the economy contracted by 0.5%, as expected. Markets have already fully priced in another 25 basis point rate cut for October.

The US Dollar remains under pressure as expectations grow for additional rate cuts by the US Federal Reserve by the end of 2024. The latest dot plot projections indicate a gradual easing cycle, with the median rate for 2024 revised down to 4.375% from the June forecast of 5.125%.

US Treasury Secretary Janet Yellen stated on Friday that the recent interest rate cut by the Federal Reserve is a very positive indicator for the US economy. According to Yellen, it demonstrates the Fed's confidence that inflation has significantly decreased and is moving toward the 2% target. Meanwhile, the job market continues to show strength.

Source: FXSTREET