Week Ahead: Spotlight Turns to Pound and Non-U.S. Data After Dollar Bruising

It’s been a tumultuous period for sterling these last couple of months and the coming week could again be a bumpy one. Aside from the fact that the week is jam-packed with key economic gauges, the government will unveil its much-anticipated Autumn statement. According to reports, the new chancellor, Jeremy Hunt, is planning to announce a combination of spending cuts and tax increases to fill a fiscal hole that was exacerbated by the mess created by the prior administration.

Hunt and Prime Minister Rishi Sunak will have quite a battle on their hands on Thursday to regain some economic credibility. But as long as the government’s own numbers add up and match the independent forecasts provided by the Office for Budget Responsibility, the event could be positive for the pound.

There is a danger that Hunt and Sunak go too far with their fiscal tightening, which would imply the Bank of England might not have to raise interest rates as aggressively, although this may not necessarily be bad for sterling and could even boost it.

Regardless, it will be hard for the currency to ditch its clouded outlook entirely as the incoming data is expected to confirm a deteriorating economic backdrop with too high inflation. The employment report for September is up first on Tuesday, to be followed by the consumer price index for October on Wednesday. Retail sales figures will round up the week on Friday.

Nevertheless, hopes are high that the Chinese government will soon do away with draconian Covid restrictions so investors might not react too negatively to disappointing data.

Hence, for the China-sensitive Australian dollar, domestic indicators will probably be more crucial as investors have upped their bets lately that the Reserve Bank of Australia will keep rates on hold at its next meeting in December.

The RBA publishes the minutes of its prior meeting on Tuesday, and on Wednesday and Thursday, quarterly wage and employment numbers will be watched, respectively.

A stronger-than-expected rise in employment in October would lessen the odds of no change in rates in December, potentially boosting the aussie as it rebounds from the October lows against the greenback.

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Another central bank that has recently shifted into lower gear is the Bank of Canada, although the local dollar remains one of the top performers this year.

Wednesday’s CPI report could determine if the BoC opts for a 25- or 50-bps hike at its December gathering.