Weekly Forex Review & Outlook 14-Nov-2022: Spinning the wheel of fortune. USD Seesaws, GBP depends on BOE and Yen is winner

A review of last week

At the end of the past week the dollar sank to three-month lows, and while this sent cable to its highest since August, the pound lost against most other G10 currencies.

Between Monday and Friday the dollar index (DXY) fell from above 111 to below 106.4 on Friday, which was last seen in the first half of August.

The greenback’s biggest losses were against the Swiss franc (down more than 6%), Japanese yen (5.5%), Swedish krona (4.9%), pound (4%), euro (3.9%) and 3%-plus declines versus a whole host of others.

Like other dollar dumps seen in recent weeks, the reason was the market predicting (or hoping for!) a policy pivot from the US Federal Reserve, sparked this time by a deceleration in core inflation.

This saw some big rebalancing of USD positioning across the market.

Accordingly, this meant GBP also reached its highest against the USD since that month too. Sterling gains of over 3% were also made versus the Mexican and Hong Kong dollars, and 2.6% versus the Chinese yuan (CNH).

The Japanese yen, which has suffered from trade shock this year due to the country’s dependence on imported resources, was also a winner not just against the USD as it was seen as oversold.

USD/JPY retreated further away from the 150-mark, with a plunge from closer to 147 early on Thursday to below 139 on Friday.

Ignoring dollar pairs, other winners in the week included the euro, which gained against MXD, TRY HKD and RUB, while both Aussie and Kiwi dollars gained ground on CAD.

The Canadian dollar also lost out notably against CHF and JPY.

The Week Ahead

Looking to the current week, there various US retail and housing numbers that could help strengthen or weaken the Fed pivot theory, while markets will also be watching the G20 summit that starts today and where US and Chinese Presidents Biden and Xi are to meet.

A torrent of Fed speakers is due over the week include Brainard and Williams today, Cook on Tuesday, Waller on Wednesday, and then Bowman and Jefferson on Thursday.

Starting with the US, the state of US consumers will be front and centre, with retail sales for October on Wednesday, where the market is expecting a 0.9% month-on-month rebound from a flat reading in September.

US housing data on Thursday and Friday will be in focus after the softer core inflation figures last week showed some moderation in rental price pressures. Housing starts and permits are on Thursday and existing home sales numbers are released on Friday, with softer numbers due to the rapid rises in mortgage borrowing costs that have undermined demand.

For the pound, there’s jobs numbers on Tuesday and inflation figures on Wednesday that might lead the Bank of England towards the interest rate pivot that it recently hinted might not be far away – though the Autumn Statement on Thursday is likely to be bigger news.

After the damage caused to the pound and elsewhere by the last mini-budget, new chancellor Jeremy Hunt and prime minister Rishi Sunak have worked hard to reassure markets about their plans, so the general direction of travel is already pretty well known.

We know Hunt and want to close a fiscal deficit they estimate to be between £30bn and £60bn, split between tax rises and cuts to government spending and investment – but the precise details and when the measures are due to be implemented will be key.

Also, the statement from Hunt will be accompanied by new forecasts from the Office for Budget Responsibility, which were lacking when the doomed mini-budget was announced in September.

This will follow UK inflation for October on Wednesday that is expected to be when CPI will have peaked, at around 10.6%, as this includes the latest rise in household energy prices, which are now being fixed by the government until at least April.

European data includes industrial production today, with trade, GDP and preliminary jobs tomorrow, and inflation on Thursday. ECB president Christine Lagarde will also be making a speech on Friday morning.

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