- Following US inflation data, the GBP/USD pair extended its decline.
- British labor market data and retail sales data from the U.S. are of utmost importance.
- The daily chart for mid-November shows a decidedly bearish trend.
In October, prices for cars, housing, and nearly all goods and services increased, pushing not only the overall consumer price index to a 31-year high, but also the core index to 4.6%, surpassing expectations. Following an initial hesitant reaction, the markets have reacted more aggressively in anticipation of faster rate hikes from the Federal Reserve. the GBP/USD pair extended its decline.
In the U.K., tensions over Brexit have risen. As the U.K.’s representative on the issue, David Frost has stated he may use Article 16 of the withdrawal treaty to suspend the deal, prompting new fears of a trade war.
The UK GDP data for the third quarter came out at 1.3%, a bit worse than 1.5%, adding some pressure to the pound. Therefore, the odds of the BOE raising rates in December were reduced.
U.K. Events: The most important numbers.
September employment data appeared on Tuesday. On average, economists expect unemployment to remain at 4.5 percent, a repeat of the August figure, and wage growth of 7.2 percent to 7 percent year-over-year. In preparation for its rate decision in December, the BOE will monitor both of these figures closely.
The October CPI figures released Wednesday are even more important to the BOE. Inflation was 3.1% year-over-year in September, and any increase would likely lead to a rate hike. Similarly, a return to below 3 percent could cast doubt on such a decision. Another parameter to consider is core prices. There could also be other factors driving the pound higher besides rising energy costs.
Retail sales figures on Friday might also shake up the pound. After registering a moderate decline of 0.2% in September, a 0.5% increase is forecast for October.
Despite this busy economic calendar, the Brexit will likely remain a market driver for the pound. European and British negotiators continue to haggle over the rewrite of the Northern Ireland protocol, and threats of Article 16 could put even more pressure on the pound. While officials are locked in talks and refrain from talking to the press, sterling may rise as long as there is no news to report.