GBPUSD has flipped short-term bearish2023 lows a target for the near-termUK jobs and inflation data offer interestPowell speech is the USD's highlight

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The Pound to Dollar exchange rate outlook has deteriorated markedly with the short-term picture now decidedly bearish, and heightened geopolitical tensions, rising oil prices and soft UK data readings in the coming week could heap further pressure on the pair.

Last week's five-day forecast looked for a recovery rally to extend, which it duly did, right up until Thursday's strong market reaction to U.S. inflation numbers that sent the USD shooting higher.

The resultant price action damaged the building of positive technical momentum in pairs such as Pound-Dollar, and Shaun Osborne, Chief FX Strategist at Scotiabank, says he has turned bearish on the exchange rate's near-term prospects as a result.

"Cable’s strong rejection of resistance in the mid 1.23 zone this week is a setback which likely spells a period of renewed downside pressure in the short-term at least," he says in a recent technical assessment.

"Trend dynamics are shifting against the pound as well and the persistence of the broader bear trend in place since the middle of the year suggests another test of the pound’s recent low around 1.2050/55 may result. Resistance intraday is 1.2225," he adds.

Above: The notable failure in GBPUSD's recovery puts the 2023 low into sharp focus over the coming days. Set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.

The coming week is busy in terms of UK data releases and idiosyncratic volatility for Pound exchange rates can therefore be expected.

"The release of UK labour market, inflation and retail sales data could attract considerable attention. Given the reassessment of the BoE policy outlook by the markets in recent weeks and the aggressive unwinding of GBP-longs, the GBP could benefit from any positive data surprises," says a weekly FX analysis note from Crédit Agricole.

Tuesday sees the release of UK labour market statistics and the market will react to earnings and changes in employment levels as these offer a signpost as to where UK inflation trends could be headed over the coming months.

Average Weekly Earnings - excluding bonuses - are expected to have risen 7.8% annualised, unchanged on a month prior.

But economists at Pantheon Macroeconomics look for a fall to 5.0% annualised, representing a sizeable undershoot that would lower the odds of the Bank of England raising interest rates again, weighing on UK bond yields and the Pound.

Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, says the labour market report will likely show that the unemployment rate has continued to exceed the Bank of England's expectations and wage growth has started to lose some pace.

Image courtesy of Pantheon Macroeconomics.

The market expects a 4.3% headline unemployment rate in August, unchanged from July, but above May's 4.0% and the Bank of England's Q3 forecast for 4.1%.

The Bank of England, therefore, shouldn’t hesitate to keep Bank Rate at 5.25% next month, according to Tombs.

Wednesday brings with it the all-important inflation numbers for September and the market looks for headline inflation to fall to 6.5% year-on-year from 6.7% previously, but the month-on-month reading is anticipated to have risen from 0.3% to 0.4%, largely as a result of rising fuel prices.

September's release proved a decisive moment for the Pound as the unexpectedly soft reading prompted a selloff that endured through the month. Another undershoot could trigger similar price action in October, putting the 2023 lows for GBPUSD back under pressure.

Friday will see the release of GsK consumer confidence figures and retail sales, while offering some interest these releases are unlikely to have a material impact on the market, particularly given the sizeable signals that will have been provided by the wage and inflation numbers just days earlier.

There is a fair amount of data to come out of the United States in the coming week, although the market-moving impact of the releases will have been dented somewhat by last week's inflation release, which sparked some notable moves in the market.

In short, the hotter-than-expected core services element of the inflation basket prompted investors to bet the Federal Reserve might have to raise interest rates again, with December now being favoured.

The data jolted the 'higher for longer' interest rate trade back to life from a short slumber, sparking a rally in U.S. bond yields and the Dollar.

The question for the coming week is how incoming data contributes to, or detracts from, this theme.

The Empire State Manufacturing Index is due Monday at 13:30 BST with markets poised for a reading of -1.5 for October as activity deteriorates from 1.90.

Keep an eye on the Federal Reserve's Harker, who is due to speak on the same day, we would watch for any reaction to last week's inflation numbers.

The Fed's Williams speaks Tuesday, as does Bowman.

Tuesday's data includes retail sales at 13:30 BST, where a headline 0.2% month-on-month is expected for September, with core retail sales expected at 0.1%.

On Wednesday, building permit figures are expected to read at 1.45M and housing starts at 1.405M. The data is not traditionally impactful on the Dollar, but it will provide a decent insight into how the higher interest rate environment impacts the sector.

The Fed's Waller, Harker, Cook and Williams are all booked to speak, so perhaps its central bank guidance that offers the interest for markets.

Thursday sees Fed Chair Powell speak and if he touches on monetary policy, we would expect this to be the highlight of the week for the market.