The dollar steadied against most major rivals on Friday after a spate of US data.

Earlier US data showed personal consumer spending rose 0.6%, passing estimates of 0.5% and triggering concerns about inflation.

The Michigan\Reuters consumer confidence index fell 58.6 in September, while analysts expected 59.5.

Fed officials renewed statements the Fed won't back down from current policy objectives to control inflation.

The dollar index rose 0.1% as of 17:26 GMT to 112.3, with a session-high at 112.6, and a low at 111.5. 

US stock indices steadied on Friday while still heading for weekly and monthly losses. 

Earlier US data showed personal consumer spending rose 0.6%, passing estimates of 0.5% and triggering concerns about inflation.

The Michigan\Reuters consumer confidence index fell 58.6 in September, while analysts expected 59.5. 

Fed officials renewed statements the Fed won't back down from current policy objectives to control inflation. 

Dow Jones fell 0.4%, or 100 points to 29,127, while S&P 500 fell 0.1%, or 2 points to 3,638, while NASDAQ rose 2%, or 30 points to 10,766. 

Dollar turned higher in European trade after an earlier in dip in Asia, holding above week lows ahead of important US consumer spending data which will offer clues on growth and inflation in the third quarter. 

The dollar is now heading for the first weekly loss in three weeks on active profit-taking from 20-year highs while risk appetite improves in the market.

The Index

The dollar index rose 0.8% to 112.64, after losing 0.85% yesterday, the second loss in a row after an intervention by Bank of England to boost the UK bonds market. 

Spending Data

Later today, US consumer spending data will be released for August which will provide clues for performance in the third quarter. 

Strong data will bolster the case for 0.75% rate hikes at the upcoming Federal Reserve meetings this year, in turn boosting the dollar. 

US personal spending is expected up 6.6% in August, improving from a 6.3% increase in July, while core spending is expected up 4.7%. 

On a monthly basis, personal spending is expected up 0.3% in August, while core personal spending is expected up 0.5%. 

Weekly Trading

The dollar index is currently down 0.5% this week on track for the first weekly loss in three weeks on profit-taking away from 20-year highs at 114.78.

Risk appetite improved as well in the market after an aggressive intervention by Bank of England to boost the UK bonds market bu purchasing long-term treasury bonds in order to stabilize them. 

After the pound started the week with a record low against dollar, it wasn't expected that such losses would be turned to such profits, that the pound is heading now for the largest weekly gain in 2-1/5 years. 

So what caused such volatility and what is the pound's outlook? we answer these questions in this report. 

Sterling

Sterling rose 1.1% today against dollar, extending its strong gains for the fourth days in a row and hitting a week high at 1.1234. 

The pound spiked 2.1% yesterday, the largest profit since March 2020. 

It comes after the pound hit a record low against dollar at 1.0348 amid concerns about a burgeoning debt crisis in the UK.

So far the pound is up 3.5% this week against dollar on track for the first weekly profit in three days, and the largest since March 2020. 

The Big Turn

The huge turn in sterling's luck came after Bank of England intervened to stabilize the bonds market. 

Bank of England started its emergency bonds purchases program on Wednesday valued at a billion pounds and asserted its commitment to purchase as many long-term golden bonds as needed until October 14.

Such immediate intervention tanked long-term treasury yields in the UK, and also tanked US 10-year treasury yields, in turn boosting the pound against dollar.

The BoE also said it's ready to purchase over 20-year traditional bonds in secondary markets with rates that might reach 5 billion pounds initially for each auction.

The bank embarked on emergency purchases of long-term government bonds this week to rebalance the chaotic markets.

Intervention in the Forex Market

After the BoE intervened in the bonds market, it's preparing to intervene as well in the forex market, but indirectly. 

Reports indicated the BoE has asked local government banks to get ready to intervene in the forex market on its behalf. 

Positive Data

Otherwise, the pound was also boosted by positive UK data which paved the way for a steeper rate hike in November. 

UK current account deficit was less than expected in the second quarter, while GDP grew 0.2% in the final reading, compared to a 0.1% contraction in the initial reading for the second quarter. 

Rate Forecasts

Now analysts expect Bank of England to increase interest rates by 125 basis points in November, with some chance of a 1.5% rate hike. 

Credit Suisse Bank expects the BoE to raise interest rates aggressively from 2.25% currently to 4.5% by early 2023. 

Sterling's Forecasts

Analysts expect the pound to continue heading towards $1.15 then towards $1.2 as the BoE prepares to tighten policies ever more aggressively every month.