GBP, EUR and USD weekly forecast

GBP

Sterling began the week sluggishly, with a lack of UK economic data leaving the currency without direction.

We saw the latest UK jobs data take center stage on Tuesday. Unemployment surprised markets as it increased to 4.4% from February to April, posting higher than the market forecasts of 4.3% and showing the fourth consecutive increase in the British unemployment rate. Indications of a weakening UK labour market initially soured Sterling sentiment, however, a stronger-than-forecast batch of wage growth data helped to cushion GBP’s losses.

Average earnings, excluding bonuses, printed as forecast at 6%, in the 3 months before April, while the figures including bonuses exceeded expectations at 5.9%, rather than the predicted retraction at 5.7%. Persistent wage inflation led markets to speculate on how the Bank of England might respond to stubbornly high wages, which helped to offset potential losses for GBP.

The UK's latest GDP data was released on Wednesday, showing that growth stalled in April as expected. This deterred investor interest in the Pound, leaving it largely rangebound for much of the day.

Sterling remained flat on Thursday as the absence of data releases left the currency susceptible to external fluctuations. The release of the Labour Party manifesto also disappointed markets.

The week ended with limited economic data, keeping GBP mostly subdued. However, postponed expectations of a Bank of England interest rate cut appeared to support Sterling. Economists still seem to favor August or September for the BoE's first interest rate cut, indicating that any expectations of a rate cut in June have diminished.

Looking ahead, inflation data from the UK is scheduled for release this week. Meanwhile, UK headline inflation is expected to ease to 1.9%, dropping below the central bank’s 2% target rate. This could push markets to reassess their current rate cut expectations, potentially influencing GBP exchange rates.

EUR

The Euro started Monday’s session on a gloomy note, with political uncertainty exerting downward pressure on the common currency.

Right leaning, Eurosceptic parties gained ground across the EU, particularly in France, concerns about political instability in the region caused the EUR to plummet to a twenty-two-month low. Political anxiety continued to reign on Tuesday, hammering the single currency. In addition to this, rating’s agency Moody’s warned that France’s snap election could negatively impact the country’s credit score.

On Wednesday, a tumbling US Dollar saw the Euro recoup some of its recent losses, due to the currency pairing’s negative trading relationship. Both headline and core inflation in the US cooled to unexpected levels, sparking a huge USD sell-off and rocking global markets. However, increased risk appetite later in the session led to a retreat in the EUR, given its safe-haven nature, as investors favored riskier currencies.

Thursday saw the latest industrial production data from the Eurozone fell short of expectations of 0.2%, unexpectedly contracting by 0.1%. This development served to undermine the common currency.

An deluge of commentary from European Central Bank policymakers on Friday was largely overshadowed, as rate-setters maintained a cautious stance, resulting in the EUR trading sideways as the week ended.

Looking ahead to this week, inflation data for the Eurozone is due to be released this week. The Eurozone’s finalized inflation figures are expected to show a slight increase to 2.6%. This could enable the EUR to recover some of its recent losses amid changing expectations regarding ECB rate cuts.

USD

The US Dollar began the week trading within a narrow range, lacking significant data to guide its direction.

Wednesday saw the US Dollar plummet against most of its counterparts following the release of the latest US consumer price index. The data came in weaker than anticipated, with headline inflation unexpectedly easing from 3.4% to 3.3% in May, resulting in a depreciation of the USD following the release.

On Thursday, the Dollar attempted to recover some of its losses following the Federal Reserve's latest interest rate decision later that evening.

Despite the Fed implying that it will only implement one interest rate cut this year, the US Dollar continued to struggle to attract buyers.

As Thursday progressed, an unexpected drop in US producer price inflation and a surprise increase in jobless claims appeared to have minimal impact on USD investors, with the American currency trading sideways for the rest of the week.

Looking ahead for the US, significant market-moving data will be scarce next week. However, on Tuesday, the US will release its latest retail sales data.

The data is expected to show a slight increase in May's reading, forecasted to rise from 0% to 0.3%. If the data meets expectations, this could provide modest support for the USD as the week progresses.

‍