Photo by Colin Watts on Unsplash

In the upcoming week, major currency pairs like GBP/USD, EUR/USD, and USD/JPY could experience significant dollar-driven moves despite a lighter economic calendar. With rising US unemployment and cooling inflation, investors are increasingly confident that the Federal Reserve will implement at least a 25-basis point rate cut in September. The Jackson Hole Symposium could finally offer a clear signal from Fed Chair Jerome Powell regarding this anticipated rate cut. Additionally, the PMI data scheduled for Thursday could inject some volatility into the pound and euro, especially as the European Central Bank grapples with growth concerns, strong wage pressures, and persistent inflation in the services sector. In the UK, a divided Bank of England has left traders uncertain about the central bank's next steps, particularly with services inflation still posing a challenge. However, the recent recovery in GBP/USD suggests the path of least resistance remains to the upside. 

Dollar Retreats Despite Strong Retail Sales

As we look ahead, the economic calendar is relatively quiet, with global PMIs on Thursday being the only major event before the Jackson Hole Symposium on Friday. The latest US retail sales data released on Thursday exceeded expectations but provided only a temporary lift to the dollar. By Friday’s mid-session, the greenback had given up those gains. This market reaction underscores the shifting focus of the Fed, which is now more concerned with the labour market than inflation. With the unemployment rate climbing to 4.3%, well above the Fed's year-end target, traders are paying closer attention to employment data. This focus explains why the dollar struggled to maintain its strength even after positive retail sales figures.

Key Events: PMIs and Jackson Hole Symposium

The spotlight on the upcoming week’s economic calendar will be on the Jackson Hole Symposium, but global PMIs on Thursday also warrant attention. In the U.S., the focus will be on services inflation and any signs of a continued slowdown. A gradual deceleration would support the "soft landing" narrative, but weaker-than-expected data—whether in headline figures, new orders, prices, or employment—could trigger speculation about Fed rate cuts, leading to a potential sell-off in the dollar.

In the UK, the PMI data will be closely watched, particularly for signs of persistent inflation in the services sector. If inflation remains strong, it could complicate the BoE's ability to cut rates further, potentially boosting the GBP/USD. 

The Jackson Hole Symposium will be the main event on Friday, attracting central bankers, finance ministers, and market participants from around the world. This event has historically been a platform for the Fed to signal major policy shifts. Recent data, including stronger retail sales and jobless claims, suggest that a 25-basis point rate cut is more likely than the 50-basis point reduction expected a few weeks ago. However, with the Fed increasingly focused on the labour market, the non-farm payrolls report on September 6 will be crucial. Nevertheless, any strong hint of a rate cut at Jackson Hole could weaken the dollar and support a modestly bullish outlook for GBP/USD.

Technical Analysis: GBP/USD Shows Positive Signs

Source: TradingView.com

As of Friday afternoon, the GBP to USD rate was holding onto its weekly gains, signalling a potential end to the four-week losing streak. This positive technical development suggests the possibility of further gains in the coming week. However, should the Fed provide a hawkish message at Jackson Hole, the technical outlook could shift. For me, it would take a break below July’s low of 1.2615 to drop my bullish bias on this pair. Key support levels to watch include the 1.2850 area, followed by longer-term support in the 1.2700 – 1.2750 range, which could provide a bounce on any short-term weakness.

In summary, the GBP/USD outlook remains cautiously bullish, with market participants closely watching upcoming PMI data and the Jackson Hole Symposium for any clues on future Fed policy moves.

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