Key Central Bank Decisions and Inflation Data Set the Tone
GBP
Sterling saw muted movement early in the week, with GBP/USD drifting near 1.3545 and GBP/EUR retracing from 1.1775 back below 1.1730. Caution remains ahead of a key week for UK data and policy.
Markets widely expect the Bank of England to hold interest rates at 4.25% on Thursday. However, signs of softness in the UK labour market—rising unemployment and slower job growth—may lead policymakers to signal a more cautious tone.
UK CPI data due Wednesday will be closely watched for confirmation that inflationary pressures are easing. A softer print would further reinforce the case for gradual rate cuts later this year.
Strategists at Danske Bank remain negative on the Pound, citing persistent economic uncertainty and the currency’s sensitivity to broader risk sentiment.
USD
The Federal Reserve is also expected to keep rates unchanged in Wednesday’s decision. With inflation easing and growth still intact, attention turns to the new dot plot for clues on when rate cuts might begin.
Markets will also scrutinise the Fed’s updated economic projections and Powell’s press conference, looking for any shift in tone. The last dot plot pointed to two potential cuts in 2025, but any upward revision to inflation could delay that timeline.
Meanwhile, the US Dollar remains supported by safe-haven flows, as geopolitical tensions in the Middle East intensify. The conflict between Israel and Iran has led to a modest bid for the Dollar, despite otherwise rangebound trading.
EUR
EUR/USD continues to trade below 1.160, with upward momentum capped by a cautious macro backdrop and stronger USD demand.
Comments from ECB officials this week reaffirmed the current “wait-and-see” approach. Policymakers remain focused on inflation risks—particularly those stemming from higher oil prices—before committing to further easing.
Markets will also pay attention to Tuesday’s German ZEW sentiment survey, with expectations pointing to a modest improvement in forward-looking confidence.
Commodities & Safe Havens
Oil: Brent continues to trade near recent highs, underpinned by geopolitical tensions and supply concerns. Any escalation in the Middle East could trigger further price spikes.
Gold: Hovering near multi-month highs, supported by risk-off sentiment and persistent inflation uncertainty.
Outlook & Summary
This week will be a pivotal one for FX markets. Investors await key interest rate decisions from both the Federal Reserve and the Bank of England, with forward guidance and inflation data set to drive direction. Geopolitical tensions and energy markets continue to add volatility to the backdrop, reinforcing the USD’s safe-haven appeal. Sterling and the Euro, meanwhile, remain at the mercy of domestic data and central bank messaging.
GBP/USD: Rangebound ahead of BoE, with 1.345–1.365 likely to hold unless policy surprises.
EUR/USD: Limited upside; oil-driven inflation and ECB caution are key factors.
USD: Likely to remain well-supported in the short term amid safe-haven demand and Fed watch.
Economic Calendar Highlights This Week
Wednesday:
- UK CPI (May) – Key inflation gauge ahead of BoE meeting
- US Retail Sales – Consumer spending under the spotlight
- Fed Interest Rate Decision + Dot Plot and Press Conference
Thursday:
- Bank of England Interest Rate Decision
- US Jobless Claims & Housing Data
- Eurozone Inflation Revisions
If you have upcoming currency requirements and would like expert guidance on navigating the markets, don’t hesitate to contact one of our consultants at 020 3876 5432.