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Sterling had a mixed week last time out, falling sharply against the US dollar but testing multi-month highs over the euro.
The pound was speeding in two directions at the end of the last week, with GBP/EUR flying high and GBP/USD in the doldrums.
Its fall against the US dollar can be firmly attributed to the success of the US economy, with the Federal Reserve’s preferred measure of inflation jumping again in May. However, the US economy is looking strong, with more than 2% annual growth in the first three months of the year.
Against the euro, traders felt able to relax as the replacement for Keir Starmer looks to be a done deal and the only question worrying the markets being the direction of Andy Burnham’s economic policy. He is preparing to set out his economic pitch, and markets will be listening for clues on tax, spending, devolution and the next chancellor. Last week GBP/EUR broke above the resistance level it had been butted up against for almost a year, but has since fallen below it again.
Europe has a similar, if less theatrical, problem. Inflation data is out this week but it looks to have moved back above the European Central Bank’s comfort zone of 2%, while growth remains patchy. That leaves the euro caught between support from higher rate expectations and concern that tighter policy could land on a still-fragile economy.
The week ahead should give currencies plenty to digest. Finalised UK growth figures (GDP) arrive on Tuesday, American jobs data lands this week too, and investors will keep watching whether the recent fall in oil prices feeds through into calmer inflation.
There is also the threat of fresh hostilities in the Middle East to consider. Just when it looked like the interim peace deal might hold, the United States struck targets in the region and president Trump once again threatened sweeping attacks on the Iranian regime. The price of oil moved little in overnight trading but it’s one to keep an eye on this week.
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GBP: Pound waits for Burnham detail
Sterling ended last week hitting a fresh 11-month high against the euro but sinking against the resurgent US dollar. The pound’s next test looks to be Burnham’s economic details and the chancellor question, although an answer to that is not expected for close on three weeks. In the meantime Tuesday’s UK growth figures may determine whether sterling’s recent resilience feels well-grounded or a little thin.GBP/USD: the past year
EUR: Euro fights back
The euro took advantage of the dollar’s late wobble last week, and fought back against sterling too. That was a steadier finish after a week in which the single currency had spent plenty of time under pressure. Europe’s good news comes with strings attached, and this week is all about inflation data. Higher inflation can support a currency when it points to higher interest rates. It becomes less helpful if households and businesses start feeling the squeeze again.GBP/EUR: the past year
USD: Dollar bends, but Fed story holds
The dollar slipped back coming into the weekend, US inflation is running higher than the Fed would like and its next move is being discussed in tougher terms than it was only a few weeks ago. That leaves this week’s two jobs reports (JOLTs tomorrow and Non-Farm Payrolls on Friday) carrying extra weight. A strong labour market would give the Fed more room to stay hawkish. A softer one would complicate the picture and could hit the dollar.USD/GBP: the past year
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