By ForexTime
Various asset classes, from FX to stocks, have been swayed by how central bankers are going about trying to tame surging global inflation.
That theme will continue to be the focus in the coming week:
Monday, August 15
Tuesday, August 16
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For the UK’s July consumer price index (CPI), markets are forecasting a year-on-year print of 9.9%.
If so, that would mark the fastest advance in UK inflation since the 10.2% print back in February 1982.
Though keep in mind that the Bank of England (BOE) had already forecasted double-digit inflation to arrive by October, hence it’ll be no surprise if the CPI print continues moving higher.
A higher-than-expected headline inflation print next week may not be enough to even prompt markets to significantly raise their bets that the Bank of England can proceed even with a 50-basis point hike at its September meeting.
Markets have walked back bets of the BOE being overly aggressive with its rate hikes, given the cracks that are already showing in the UK economy:
Overall, it’s difficult to retain any optimism about the UK economic outlook, considering the ongoing cost of living crisis.
And the widely-held consensus is that the worst is yet to come, with a recession looming.
Such a woeful outlook, with the BOE already expecting a recession by the end of this year, is set to cap significant upside for the Pound.
Sterling has weakened against all of its G10 peers this week, except versus the US dollar.
While GBPUSD has found support at its 21-day simple moving average in recent sessions, upside appears capped around the 1.24 mark.
Should we see a resurgence in the US dollar in the coming week, perhaps fuelled by fresh hawkish clues out of the FOMC minutes or the scheduled speeches by Fed officials, that might see GBPUSD falling below its 21-day SMA and retesting the psychologically-important 1.20 level.
Weaker-than-expected UK jobs data, consumer confidence, and retail sales in the coming week could also prompt GBPUSD to revisit recent lows.
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