FX Market Update: US Data, Eurozone Inflation & UK Political Developments in Focus.

• USD – Remains relatively resilient, though has eased from last week’s highs as geopolitical tensions have stabilised. A busy week of US data will determine whether the dollar can regain momentum.

• EUR – Holds a moderately constructive outlook, with inflation data and ECB commentary likely to dictate direction. Expectations for further policy tightening continue to provide support.
  

• GBP – Faces a mixed outlook, with political developments remaining the primary domestic driver. Sterling is likely to take its cue from broader US and eurozone market movements.

USD:

The dollar has softened by around 0.7% from last week’s peak after geopolitical tensions in the Middle East eased following a ceasefire agreement. While the greenback continues to benefit from its safe-haven status, the reduction in risk aversion has limited further gains. Attention now turns to a packed week of US economic releases, with Thursday’s Non-Farm Payrolls report taking centre stage. Ahead of that, markets will digest the JOLTS job openings report, ADP employment data and the ISM Manufacturing PMI. Consensus expectations are for payrolls to slow to around 113,000 from May’s stronger 172,000 reading, which could provide further direction for Federal Reserve rate expectations.

---

EUR: 

The euro enters the week in a relatively balanced position, with inflation data and central bank communication set to drive sentiment. National CPI releases from Spain, Germany, France and Italy will culminate in Wednesday’s Eurozone inflation print, where headline inflation is expected to ease from 3.2% to 3.0%. Alongside this, the ECB Forum in Sintra will see several policymakers, including President Lagarde, provide updates on the policy outlook. While no major shift in messaging is anticipated, markets will be looking for further guidance on whether the ECB is likely to deliver another rate hike later this year, which continues to underpin the euro.

---

GBP: 

Sterling’s domestic focus remains firmly on politics, with attention on Andy Burnham’s speech outlining a proposed 10-year growth strategy. Given growing expectations around his future leadership prospects, markets will closely monitor any indications of future economic policy and potential appointments, including the next Chancellor. Beyond domestic developments, however, sterling is likely to remain heavily influenced by events overseas, with US economic data and Eurozone inflation expected to be the dominant drivers for currency markets this week.

Economic Calendar