Week Ahead: Can GBPUSD rise to 1.190?

First, let’s recap the volatile week that was for global financial markets!

Here’s the stunning price action that ensued after the lower-than-expected US inflation print that was released yesterday (Thursday, Nov 10th):

• DXY, the benchmark used to measure the US dollar’s performance against six major G10 currencies, saw its biggest single-day drop since December 2015!
   
• The S&P 500 posted its best one-day surge since the onset of the Covid-19 pandemic, while also registering its best CPI day advance since 2008!
   
• Gold is on course for its largest one-week gain since July 2020 (unless the precious metal can keep on climbing today to register a weekly gain of more than 5.06%)

 

And even before the dust has fully settled from yesterday's major moves, it’s already time we look ahead to next week, given the forward-looking nature of the markets.

The British Pound is set to be in particular focus amidst these potential market-moving economic data releases and events:

 

Monday, November 14

• EUR: Eurozone September industrial production; speeches by ECB’s Fabio Panetta, Luis de Guindos
• USD: Speech by New York Fed President John Williams
   

Tuesday, November 15

• JPY: Japan Q3 GDP
• AUD: Reserve Bank of Australia November meeting minutes
• CNH: China October industrial production, retail sales, jobless rate
• EUR: Eurozone September trade balance, Q3 GDP and employment, November ZEW survey
• GBP: UK September unemployment, October jobless claims
• Brent: International Energy Agency releases monthly oil market report
• Former US President Donald Trump to make announcement
• Walmart 3Q earnings

Wednesday, November 16

• CNH: China October new home prices
• EUR: Speeches by ECB’s Christine Lagarde and Fabio Panetta
• GBP: UK October CPI, BOE Governor Andrew Bailey speech
• CAD: Canada October CPI
• USD: US October retail sales, industrial production; speeches by New York Fed President John Williams and Fed Vice Chair Lael Brainard
• US crude: EIA weekly oil inventory report

Thursday, November 17

• JPY: Japan October external trade
• AUD: Australia October unemployment
• EUR: Eurozone October CPI (final)
• GBP: UK Chancellor of the Exchequer Jeremy Hunt presents fiscal statement; speech by BOE’s Huw Pill and Silvana Tenreyro
• USD: US weekly initial jobless claims; speeches by Minneapolis Fed President Neel Kashkari, Fed Governor Philip Jefferson, Cleveland Fed President Loretta Mester
• Alibaba 3Q results

Friday, November 18

• JPY: Japan October CPI
• EUR: Speeches by ECB’s Christine Lagarde, Joachim Nagel, Klass Knot
• GBP: Speeches by BOE’s Catherine Mann and Jonathan Haskel
• USD: Speech by Boston Fed President Susan Collins

 

GBPUSD is about to head into this weekend on a 2-month high, having surged back above its 100-day simple moving average (SMA), thanks to the US dollar’s post-CPI tumble.

This currency pair, nicknamed “cable”, is now testing the mid-September high around 1.173, after building upon a series of higher-lows and higher-highs since careening towards parity.

Sterling’s resurgence of late has also been built on the optimism that the UK government will be on a better financial footing (or at least, it won’t be as bad as previously feared) under the new administration, following the removal of Liz Truss as Prime Minister along with her administration’s proposals for unfunded tax cuts.

However, such optimism would have to be vindicated when current UK Chancellor of the Exchequer, Jeremy Hunt, unveils the latest fiscal plans on Thursday.

Keep in mind that the UK government has a GBP 50 billion fiscal hole to fill.

Markets now expect Hunt to unveil some tax hikes as well as spending cuts, including a potential spending freeze after the UK’s next general election which may happen sometime in 2024.

In other words, this new UK government has to find ways to get more money into its coffers and avoid spending too much money, in order to shore up market confidence about the country’s financial health.

With this UK government’s credibility at stake, failure to shore up market confidence could see GBPUSD finding its way back to its 50-day SMA for support around the 1.133 region.

And of course, markets are still wary about the UK’s economic prospects, with the Bank of England just last week implying that the economy is currently in a recession and may continue contracting until mid-2024.

Against such a bleak outlook, the UK incoming jobs report and inflation data may offer scant relief. That should leave Hunt’s November 17th speech as the major catalyst for further GBPUSD gains, besides further declines in the US dollar.

 

At the time of writing, here are some forecasts for GBPUSD’s performance for the coming week (based on current levels):

• 59% chance of GBPUSD of revisiting 1.1599
• 47.6% chance of GBPUSD climbing by 2 big numbers from current levels to hit 1.19
• 33% chance of GBPUSD touching the early-October cycle high just below 1.1496
• 23.7% chance of GBPUSD staying above 1.190 over the next one week

Though to be fair, the options markets have become notably less bearish on GBPUSD’s immediate fortunes, with bearish one-week bets having halved since the start of November.

 

GBPUSD British Pound Sterling cable inflation Recession UK Prime Minister Chancellor of the Exchequer