Due to the continuous controversy surrounding the government's mini-budget and the Bank of England, sterling has been incredibly volatile over the past several weeks (BoE).
After prices plummeted to an all-time low in late September, bulls have pushed tirelessly to get prices back to pre-chaos levels.
Nonetheless, the currency is not out of the woods just yet.
With rising uncertainty and confusion about the Bank of England's next decision and rumors of more fiscal policy reversals on the mini-budget, the pound might experience increased volatility in the next week.
Before discussing the technical and fundamental elements that may impact the pound, the following economic data releases/events are scheduled for the upcoming week:
⇒ Nigeria Inflation Rate
⇒ USD: Empire manufacturing
⇒ EUR: ECB Vice President Luis de Guindos, ECB Chief Economist Philip Lane speech
⇒ China Third Quarter GDP, Retail Sales, and Industrial Production
⇒ AUD: Minutes from the Reserve Bank of Australia
⇒ Germany ZEW Survey Anticipations
⇒ Industrial production, NAHB housing market index in US dollars
⇒ EUR: Euro area inflation
⇒ GBP: UK inflation index
⇒ USD: Charles Evan, Neel Kashkari, and James Bullard, presidents of the Chicago, Minneapolis, and St. Louis Federal Reserve Banks, deliver a speech
⇒ CNH: China loan prime rates
⇒ EUR: PPI for Germany
⇒ GBP: Gfk consumer confidence
⇒ USD: US existing house sales and early claims for unemployment
⇒ EUR: Euro area consumer confidence
⇒ GBP: UK retail sales
With fewer than twenty-four hours till the conclusion of the central bank's emergency bond-buying program, the BoE and the incoming Conservative administration are at odds.
Speculation that Chancellor of the Exchequer Kwarteng would leave the IMF meetings early to deal with the present issue is likely to unnerve market participants.
Given speculation that Liz Truss may eliminate other aspects of the mini-budget over the weekend, the opening of the sterling market on Monday might startle investors.
Ultimately, the existing state of affairs exposes the British economy to negative risks at a time when growing inflation is exerting pressure on British people.
Regarding inflation, the United Kingdom releases September inflation numbers midweek. Bloomberg predicts that annual inflation will remain constant at 9.9%.
A report that meets or surpasses forecasts may fuel rumors that the Bank of England will proceed with a 100-basis-point rate rise. Such a move might provide the pound with short-term confidence, but gains are likely to be limited by worries of a recession.
Alternately, signals of decelerating inflationary pressure might diminish BoE rate rise expectations, so weakening the pound. Other important economic statistics to monitor are the Gfk consumer confidence index and retail sales.
Considering the technical picture, the GBPUSD might swing in either direction in the coming week.
If prices can maintain a position above 1.13, the next significant level of interest is 1.15, which is slightly below the 50-day Simple Moving Average.
Beyond this milestone, prices may go toward the last lower high at 1.173. Alternatively, continued weakening below 1.13 might precipitate a decline to 1.0925 and lower levels.
Rather than focusing on the pound, it may be prudent to keep a careful check on the stock market, especially now that earnings season is in full swing.
The S&P500 has declined more than 22% year-to-date, indicating that equities markets have had a difficult year.
In a climate of high-interest rates and a strong currency, investors are expected to analyze future results intently for hints about firms' growth prospects.
On the data front, there will be important economic reports from China, the United States, and Europe, among others.
Tuesday's China GDP announcement for the third quarter might be a market-moving event, depending on investor reaction. Year-over-year, the consensus forecast is 3.5%, while Bloomberg Economics forecasts 2.7% growth.
Additionally, the week will be jam-packed with multiple presentations from various financial titans. With so much occurring, it may be prudent to prepare for perhaps another exciting week in the financial markets.
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