GBP/USD Rises as Markets Await Burnham's First Cabinet
GBP/USD is edging higher on Monday, adding to last week’s gains as Andy Burnham prepares to replace Keir Starmer as UK Prime Minister.
Investors will be watching today's Cabinet announcement and Burnham's first major speech for clues on the new government's fiscal priorities.
Particular attention will be on whether Shabana Mahmood is confirmed as Chancellor. She is viewed by markets as a centrist, and her appointment would reassure investors that Burnham is not looking to ramp up spending or pursue the more expansionary fiscal policies some had feared.
Even so, uncertainty remains over Burnham's broader economic agenda. Fiscal credibility is likely to remain central to market sentiment, helping to keep gilt yields contained and providing support for sterling.
Alongside domestic politics, this is a busy week for UK economic data, with labour market figures due on Tuesday, inflation on Wednesday and retail sales on Friday.
The unemployment rate is expected to remain unchanged at 4.9%, while CPI inflation is forecast to ease to 2.4% from 2.8%, which could lower BoE rate hike expectations.
However, any improvement in inflation may prove temporary. Oil prices have continued to rise following renewed U.S.-Iran hostilities, increasing the risk that higher energy costs feed through into inflation over the coming months.
A softer-than-expected inflation reading could weigh on sterling in the near term, although stronger retail sales—supported by warmer weather and the FIFA World Cup—could provide some offset.
Meanwhile, the U.S. dollar remains under pressure following softer-than-expected CPI and PPI data earlier this month. However, rising oil prices could revive inflation concerns, supporting Treasury yields, Federal Reserve rate expectations and safe-haven demand for the dollar.
GBP/USD Forecast – Technical Analysis
GBP/USD has recovered from the 1.3200 support zone, rising above the 200-day EMA to a high of 1.3550 before pulling back below the former trendline support, which has now become resistance.
Buyers will need to reclaim 1.3485, where horizontal resistance coincides with the falling trendline. A move above this level would bring 1.3550 back into focus before exposing the 1.3600 psychological level.
Failure to reclaim 1.3485 could see the pair retest the 200-day SMA around 1.3390.
Below there, 1.3340 becomes the next key support level, with a break exposing the 1.3200 support zone.
Gold Holds Near Two-Week Low as Higher Oil Prices Revive Inflation Concerns
Gold is little changed on Monday as investors assess the impact of escalating Middle East tensions, which continue to push oil prices higher and strengthen the case for the Federal Reserve to maintain a hawkish policy stance.
The precious metal fell 2.5% last week and is broadly unchanged so far in July after declining for four consecutive months, losing almost 25% over that period.
The outlook remains challenging following last week's 15% surge in oil prices, with crude extending gains at the start of this week as U.S. forces carry out strikes against Iran for a ninth consecutive day and concerns persist over shipping through the Strait of Hormuz.
As long as the conflict continues to support higher energy prices, investors are likely to remain concerned that inflation could prove more persistent, delaying any shift towards easier Federal Reserve policy.
That backdrop is weighing on non-yielding assets such as gold.
Cleveland Federal Reserve President Beth Hammack was the latest policymaker to suggest that further interest rate increases may still be required if inflation fails to ease sufficiently.
Markets are now pricing an 82% probability of a Federal Reserve rate hike by December, up from 73% a week ago, according to the CME FedWatch Tool.
One supportive factor for gold has been continued central bank buying.
Purchases by the People's Bank of China accelerated in June, marking the largest monthly increase in three years and extending its buying streak to 20 consecutive months.
For now, the $4,000 level continues to provide support.
With little major U.S. economic data due this week ahead of next week's Federal Reserve meeting, traders are likely to remain focused on developments in the Middle East, oil prices and their implications for inflation.
Gold Forecast – Technical Analysis
Gold has broken below its symmetrical triangle pattern and the 200-day EMA, falling to a low of 3,940.
The price remains below the falling trendline as well as both the 50-day and 200-day EMAs, reinforcing the bearish technical picture. The 50-day EMA has also crossed below the 200-day EMA, generating a bearish crossover signal.
A break below 3,940 would expose 3,800, followed by 3,700.
To improve the outlook, buyers would first need to reclaim 4,100 before targeting 4,200, where the falling trendline and the July high converge.
A move above this resistance would expose the 200-day EMA around 4,310, followed by the June swing high near 4,370.
Only a sustained break above those levels would bring 4,500 back into focus.
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