Two Trades to Watch: GBP/USD, Gold

GBP/USD rises ahead of BoE rate decision

BoE to hike rates by 25 bps
Weigh up high inflation & banking stress
GBP/USD trades above 1.23 at a 6-week high

GBP/USD has risen above 1.23 to a six-week high following the Federal Reserve’s dovish interest rate hike and as investors look ahead to the BoE rate hike.

The BoE is expected to hike rates by 25 basis points in a move that will mark the 11th straight rate hike and takes the interest rate to 4.25%.

The meeting comes as the bank weighs up a surprise increase in inflation to 10.4% YoY and the recent stresses in financial stability. The vote is expected to be split, with some policymakers expected to vote to keep rates on hold. However, while the BoE has other tools available to help with financial stability, as we saw post Autumn’s mini-Budget, the bank’s principal tool for fighting inflation is to hike rates.

The 25 basis point rate hike is 94% priced in by the market, which means that the upside following a hike could be limited. There is still a small possibility that the Bank of England will choose to keep interest rates on hold in order to assess the recent fallout in the banking sector and hike again in May. Such a decision could pull the pound sharply lower.

Forward guidance will also be closely watched, with the BoE expected to be nearing the end of its rate hiking cycle.

Where next for GBP/USD?

GBP/USD has rebounded from 1.18, the 2023 low, rising above the 200, 100 & 50 sma and above resistance at 1.2270, the February 14 high.

This, along with the bullish RSI, keeps buyers hopeful of further gains towards 1.2450, the 2023 high. A rise above here sees 1.2665, the May high comes into focus.

Immediate support can be seen at 1.2275, with a break below here exposing the 50 sma at 1.2150 and 1.2025 the March 15 low.

Gold rises post Fed and looks to jobless claims

Fed hikes by 25 bps
Near end of hiking cycle
Gold looks towards resistance at $2000

Gold prices jumped 1.6% on Wednesday after the Fed hiked interest rates by 25 basis points as expected. While Fed Chair Powell pushed back on market expectations of a rate cut this year, the market focused on the more the Fed’s less hawkish adjustment to the statement: the removal “ongoing increases” from the statement, suggesting that the central bank is nearing the end of the hiking cycle.

The 2-year treasury yield and USD fell, boosting non-yielding, USD denominated gold. However it is worth keeping in mind that while the market is still pricing in a rate cut this year, the Fed isn’t so this does leave gold vulnerable to a re-pricing should the latter prove correct as the year progresses.

Today, in addition to the BoE and the SNP US jobless claims will be in focus. US jobless claims are expected to rise 197k from 192k the week before. Weaker than expected jobless claims could fuel the less hawkish Fed bets and boost Gold.

Where next for Gold?

The rise above resistance at 1960, plus the bullish RSI keeps buye5rs hopeful of further gains. Buyers need to break above resistance at 1998-2000 to open the door to 2009 the 2023 high. A rise above here creates a higher high.

On the flip side, sellers could be encouraged by the long upper wick on Monday's candle suggestiNg that there was little appetite at the higher price. A break below support at 1960 could open the door to 1934 the weekly low.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.