Week Ahead in FX (November 14 – 18): Eyes on the U.S. And U.K.’s Peak Inflation Prospects

“Peak inflation” speculations and expectations of a less hawkish Fed encouraged a “sun’s out, bulls out” market theme for risk-takers last week.

Will this week’s headlines lead to sharp pullbacks for the dollar and the rest of the majors?

Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!

And now for the closely-watched potential market movers this week:

Major Economic Events:

More Fedspeak – Higher terminal rate? Who she? Both the dollar and U.S. Treasury yields have dropped sharply since the U.S. CPI report hinted at “peak inflation” and Fed members can’t be too happy about prematurely pricing in the end of tightening.

Expect to see some pushback with FOMC members Christopher Waller, Lael Brainard, Lisa Cook, Michael Barr, John Williams, James Bullard, Michelle Bowman, Loretta Mester, and Philip Jefferson scheduled to give speeches in the next few days.

U.K.’s labor market data (Nov 15, 7:00 am GMT) – Analysts see the unemployment rate ticking higher from a decades-low of 3.5% to 3.6% while a net of 17,300 workers are expected to have filed unemployment-related benefits in October.

Upside or downside surprises in the U.K.’s jobs numbers will factor in tax expectations and the success of the government’s fiscal plan scheduled for release on Thursday.

U.S. producer prices (Nov 15, 1:30 pm GMT) – Falling commodity and freight costs are expected to soften producer inflation in October. Monthly PPI is seen at 0.3% (from 0.4%) while the annual rate is expected to have slowed down from 8.5% to 8.2%.

Lower PPI would support “peak inflation” expectations and likely fuel last week’s “Fed pivot” themes.

U.K.’s inflation numbers (Nov 16, 7:00 am GMT) – October’s inflation numbers will reflect the latest gas and electricity price increases but, given that the government will implement price caps we’ll likely start to see hints of “peak inflation.”

Headline CPI is expected to speed up from an annual rate of 10.1% to 10.5% while core CPI could clock in at 6.6% after September’s 6.5% increase.

UK Chancellor’s Autumn Statement – On Thursday U.K. Chancellor Jeremy Hunt will deliver the Sunak government’s tax and spending plans. Spoiler alert: it will be “eye watering” for a lot of people.

BBC estimates that Hunt will announce £35 billion in spending cuts and £20 billion in taxes to “make the recession we are in as short and shallow as possible.”

Watch the newswires closely for the market’s reaction to the depth and timeline of the new government’s budget plans!

Forex Setup of the Week: GBP/CHF

With the U.K. printing a bunch of top-tier reports AND the U.K.’s Chancellor rolling out the government’s awaited budget plans, I’m looking at GBP for some volatility!

GBP/CHF caught my attention as it breaks below a lowkey Head and Shoulders pattern on the daily.

As if the reversal pattern isn’t interesting enough, it also showed up around the daily chart’s 100 SMA as well as a trend line that GBP bulls and bears have been minding since late 2021.

Will GBP/CHF extend its losses this week?

Analysts expect the U.K. to print its “peak inflation” numbers this week while the labor market shows more hiring and job vacancies.

Upside surprises could boost GBP/CHF enough to bring it back above the 100 SMA and maybe even the trend line resistance that we’re watching.

On the other hand, skepticism or even violent reactions over the government’s tax and spending plans could weigh on GBP. CHF – which is getting an extra boost now that the Fed isn’t likely to be as aggressive in its rate hikes – could see more safe-haven demand.

GBP weakness and bearish momentum could drag GBP/CHF back below 1.1000 and revisit its previous inflation points near 1.0800 and 1.0600.