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Friday's Alaska summit failed to freeze the war in Ukraine.
The pound strengthened by half a cent against the euro and by over a cent against the US dollar last week, bolstered by June’s unexpectedly robust GDP report. A subdued Friday saw some of the week’s risk appetite fade away.
If Friday was quiet, it was because all eyes were trained west towards Alaska, where a visit with Donald Trump allowed Vladimir Putin to end his years in the diplomatic icebox. Few were surprised when the meeting yielded no immediate peace or ceasefire. However, the US president will today meet with Volodymyr Zelenskyy and other European leaders amid reports that Russia has set its price for a ceasefire at a land swap in the Donbas – one of Ukraine and Europe’s negotiating red lines.
It’s hard to exaggerate the significance these discussions hold for currency markets. After years of military disruption, peace (however fragile) would inject serious momentum into the excitable landscape. Should negotiations fail, markets may interpret this as a sign that even greater ruptures are on the way.
Diplomacy is therefore very much on the menu this week, but there are still plenty of economic factors that could sway exchange rates. The UK reports inflation data on Wednesday with the headline number expected to nudge closer to 4%, undermining the Bank of England’s recent interest rate cut.
Two more crucial reads serve as the chaser. On Thursday, the pound will look to sector data from S&P Global to find a direction, before Friday brings sales data from the retail trade in July.
Things are mostly quiet for the eurozone save for the latest German manufacturing data, which comes courtesy of the Hamburg Commercial Bank (HCOB) on Thursday.
Before heading off to their idyllic retreat at Jackson Hole, the Federal Reserve will publish minutes from its policymaking committee on Wednesday evening. A light week for the United States in terms of macroeconomics means the US dollar will likely be in thrall to central bankers and the White House.
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GBP: Another data test
The pound was rewarded for passing last week’s GDP test, but this week brings yet more hurdles. Inflation might make awkward reading for the Bank, but don’t expect sterling to navigate the second half of the week without a few uncomfortable moments.
GBP/USD: the past year
EUR: No flash in the pan
The euro has maintained its strength throughout the summer season. Close to a four-year high against the US dollar and holding its own against sterling, it’s now clear that a rejuvenated single currency is no flash in the pan.
GBP/EUR: the past year
USD: Consumers fear inflation
The University of Michigan’s consumer sentiment survey fell sharply in August, coming in below forecasts at 58.6. In the responses, consumers highlighted increased inflation and unemployment expectations. The US dollar is facing a similar outlook, which helps explain its struggles in the past week.
EUR/USD: the past year
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