Last week, we anticipated a surge in market volatility, and true to expectations, the markets delivered. The Pound, despite initial predictions of a challenging week, demonstrated remarkable strength, particularly against the USD, reaching highs not witnessed since mid-September. The pivotal moment for this turnaround can be attributed to the latest CPI figures from the US on Tuesday.

The US had foreseen a significant decline in headline inflation, and not only did the results confirm this, but they also came in softer than anticipated. This led to a sharp sell-off of the USD, benefiting both the EUR and GBP. The Pound, in particular, saw gains of 1.7% in the first two hours following the release of the results.

However, following the explosive gains earlier in the week, USD buyers might find it disappointing that the Pound has traded within a relatively tight range since then. Despite various other readings from the US throughout the week, the mixed bag of results had minimal impact on the markets. Yet, viewed optimistically, the lack of a substantial USD recovery, even with the release of PPI and retail sales figures on Wednesday, can be seen as a victory. For now, the markets seem to have settled, providing a potential springboard for the Pound and Euro should data and market conditions continue favourably.

The only notable data release for Sterling this week was the UK’s CPI figures on Wednesday and today’s retail sales figures. The Bank of England likely breathed a sigh of relief as inflation showed signs of a noticeable drop towards target levels. Although this was largely priced into the market, even a slight deviation from the forecasted 4.7%, with the actual figure at 4.6%, did little to dampen the Pound’s fortunes. Any losses incurred had been mostly recovered by the latter part of yesterday afternoon.

Next on the agenda were today’s retail sales figures released early this morning. Forecasts predicted a considerable upswing following a poor figure in September due to factors like the cost of living and extreme heat deterring shoppers. However, the recovery was not as prominent as expected, and although there was a slight improvement, the figure remained negative at -0.3%, prompting a minor sell-off of the Pound against both the USD and EUR.

Looking ahead to the upcoming week, traders are likely to keep a keen eye on next Thursday. With the US observing a bank holiday for Thanksgiving and the UK and Eurozone posting their latest Flash Manufacturing and Services PMI figures, positive results could potentially sustain the recent trend of the Pound and Euro gaining ground against the USD. Additionally, there are several other readings next week, including delayed PMI readings from the US, the latest consumer sentiment, and FOMC minutes on Tuesday and Wednesday.

In the UK, Bank of England Governor Andrew Bailey is scheduled to speak on Monday evening. Any hawkish comments from him could bolster the Pound. In essence, brace yourselves for a week of extreme volatility in the markets.