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.

European consumer prices surged 10% in July y/y, the highest on record, above estimates of 9.7%, and up from 9.1% in the previous reading. 

Excluding food and fuel, prices rose 4.8%, above estimates of 4.7%, and up from 4.3% in the previous reading. 

Gold prices rose in European trade for the fourth straight session on track for weekly gains as the dollar stalled against major rivals with risk appetite improving in the stock market. 

However, gold is still on track for its sixth monthly loss in a row, the longest such streak of losses since 2018 as global central banks continue to aggressive tighten policies. 

Prices Today

Gold prices rose 0.8% to $1,674 an ounce, after rising 0.1% yesterday, the third profit in a row as the dollar declined against major rivals. 

Gold prices are up 1.9% so far this week on track for the first weekly profit in three weeks away from 29-month lows at $1,614 an ounce. 

The Dollar Index

The dollar index fell 0.2% on Friday, the third loss in a row, hitting week lows at 111.57 against a basket of major rivals. 

US 10-year treasury yields tumbled 2.4% today to week lows at 3.696%, boosting risk appetite in the market and hurting dollar's standing. 

It comes in tandem with similar changes in the UK bonds market after intervention by Bank of England to purchase new long-term UK treasury bonds to stabilise the market. 

The UK government's recent plan to boost economic growth shook the market and triggered concerns of a potential sovereign debt crisis. 

Monthly Trades

Gold prices are down 2.15% so far in September on track for the sixth monthly loss in a row. 

Higher interest rates in global markets are conducive to gold investments, in turn hurting prices.  

The SPDR 

Gold holdings at the SPDR Gold Trust rose 0.29 tones yesterday, the first increase since September, to 941.15 tones.

Oil prices fell on Thursday amid concerns about global demand on commodities due to prospects of economic recession.

US GDP shrank 0.6% in the second quarter according the final reading, matching estimates and the preliminary reading, and adding to the 1.6% contraction in the first quarter.

It comes at a time of doubts about the US economy as the Federal Reserve continues to tighten monetary policies and hike rates by a fast rate. 

Recent official EIA data showed US crude stocks fell 200 thousand barrels to 430.6 million barrels, while analysts expected a buildup of 600 thousand barrels. 

US crude futures due in November fell 1.5%, or $1.27 to $80.8 a barrel. 

Brent November futures tumbled 1.2%, or $1.08 to $88.24 a barrel.