GBP, EUR and USD weekly forecast

GBP

The Pound strengthened initially this week, buoyed by confirmation that growth in the UK’s manufacturing sector reached a two-year high last month.

An upbeat market sentiment further supported the increasingly risk-sensitive Sterling, enabling it to sustain a positive trajectory throughout the first half of the week.

Sterling started to decline in the latter half of the session after a survey from the Bank of England indicated a probable decrease in inflation over the next year, as UK businesses anticipated providing reduced wage hikes in the next 12 months.

Moving forward, the UK’s upcoming jobs report is expected to serve as a significant driver of movement for the Pound Euro exchange rate this week.

Such developments could prompt a retreat in Sterling should additional indications of a cooling labor market and decelerating wage growth fuel expectations for a Bank of England rate cut. Conversely, the Pound might strengthen if April’s data surpasses expectations.

Another factor that could impact GBP exchange rates is the UK election apprehensions, particularly with the expectation that the major political parties will imminently unveil their manifestos.

EUR

The Euro had a rough beginning last week, spurred by the release of the Eurozone's most recent manufacturing PMI.

Compounding the Euro's downward pressure in the initial days of the week was the publication of Germany's recent jobs report. Although Germany’s unemployment rate remained unchanged in April, the overall number of unemployed individuals increased to its highest level since March 2021, sparking new worries about the recovery in the Eurozone’s largest economy.

EUR exchange rates stayed under pressure in the middle of the week as growth in the Eurozone’s services sector was adjusted downward in the final services PMI reading for May.

Nevertheless, the single currency managed to stage a recovery in the latter part of the week following the European Central Bank's announcement of its latest interest rate decision.

After concluding its initial policy meeting of the summer, the ECB announced a widely anticipated 25 basis points rate cut.

Yet, since the rate cut had already been extensively factored into market expectations, the subsequent movement in the Euro was predominantly influenced by the bank's forward guidance.

As a result, EUR exchange rates strengthened as the bank lifted its inflation projections for 2024 and 2025 and remained cautious about the likelihood of additional rate cuts. This action seemingly diminished the chances of a subsequent cut in July.

As this week began, the Euro faced pressure following French President Emmanuel Macron's declaration of a snap election in reaction to the unexpected results of the European Parliament election. While Eurosceptic nationalists made significant gains, according to a combined exit poll, centrist, liberal, and socialist parties are anticipated to maintain a majority.

Looking ahead for the Euro, the only significant Eurozone data next week will be the bloc’s latest industrial production figures. However, attention will primarily shift towards politics as France gears up for an election and other key EU states grapple with the aftermath of the European Parliament elections, where governing parties suffered significant losses while right-wing political parties made substantial gains across the board.

USD

Last week, the US dollar began with struggles against its counterparts after a disappointing ISM manufacturing PMI. The May index, at 48.7, signaled an intensified contraction in US factory activity.

The Dollar staged a recovery on Tuesday amidst a pessimistic market sentiment. However, its upward movement was limited by a larger-than-anticipated decline in job openings for April.

During midweek trading, the US dollar fluctuated amid mixed economic data. Although the ISM services PMI surpassed expectations, indicating an expansion in sector activity, the latest ADP employment report suggested a slowdown in job creation.

The US dollar faced downward pressure on Thursday due to additional indications of slack in the US labor market, marked by an increase in jobless claims. However, the rise in US Treasury yields helped to mitigate steeper losses for the USD.

On Friday, the greenback surged higher on the back of stronger-than-expected nonfarm payrolls. In May, the US economy added 272,000 jobs, well surpassing the forecasted 185,000. This fueled speculation that the Federal Reserve might not implement interest rate cuts as aggressively later in the year, resulting in a boost for the USD.

The Federal Reserve is set to announce its latest interest rate decision on Wednesday. While no policy changes are anticipated, any hawkish forward guidance could propel the US dollar upwards.

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