Markets Brace for Key PMI Data Amid Political and Inflation Risks.

• USD – Remains supported by rising oil prices, higher Treasury yields, and safe-haven demand, though momentum will depend on Fed guidance and broader market sentiment.

• EUR – Faces growing downside pressure as inflation rises while economic activity weakens, creating a difficult backdrop for the ECB.

• GBP – Under pressure from mounting political uncertainty and a packed domestic data calendar, with markets increasingly questioning sterling’s near-term stability.

USD:

The dollar strengthened into the end of last week, driven primarily by resurging oil prices and a sharp rise in global bond yields. The 10-year Treasury yield has climbed significantly since the beginning of the Iran conflict, reaching its highest levels in over a year as markets price in the risk of renewed global inflation pressures. Higher yields and defensive positioning continue to support the dollar, particularly against lower-yielding currencies.

Attention this week turns to Wednesday’s release of the Federal Reserve’s April meeting minutes, which should offer greater insight into policymakers’ appetite for future rate adjustments. Thursday’s PMI data is also expected to show the US economy continuing to expand modestly, with forecasts around 51.6 pointing toward slow but steady growth. With today’s economic calendar relatively quiet, the dollar is likely to take direction from moves in bonds, equities, and oil markets.

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EUR: 

The euro has come under pressure as the same factors supporting the dollar — higher oil prices, rising yields, and inflation concerns — weigh heavily on the eurozone outlook. Markets are increasingly concerned that the region may be slipping toward a stagflationary environment, where inflation continues to rise even as economic growth deteriorates.

This week’s inflation and PMI releases are expected to reinforce that narrative, potentially showing both accelerating price pressures and weakening economic activity. Such a backdrop presents a difficult challenge for the European Central Bank, as persistent inflation may limit its flexibility to support growth through looser policy. As a result, the euro could remain vulnerable in the near term, particularly if risk sentiment deteriorates further or US yields continue climbing.

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GBP: 

Sterling enters the week facing both political and economic headwinds. Political uncertainty has intensified following renewed questions around Prime Minister Starmer’s leadership prospects, with betting markets increasingly speculating on whether he can survive through year-end. The resignation of a Labour MP, alongside broader political tensions, has added to investor caution around UK assets.

Alongside the political backdrop, the UK faces a heavy run of economic data this week. Markets will closely watch tomorrow’s labour market report, Wednesday’s CPI inflation release, Thursday’s PMI figures, and Friday’s retail sales data for further clues on the health of the UK economy and the Bank of England’s policy outlook. Investors will also hear from BoE policymaker Catherine Mann today. With uncertainty elevated on both the political and economic fronts, sterling may struggle to find sustained support in the near term.

Economic Calendar