02 June 2025

GBP

With no major UK economic data scheduled this week, sterling is likely to take its cues from international developments as well as the ongoing global impacts of trade tariffs and conflicts.

The pound continues to perform strongly against many of its G10 counterparts. GBP/USD reached a 3.5-year high last week and seems ready to continue to push higher this week. A key driver for this was the US courts' restriction on Trump's tariffs, which briefly annulled them before they were reinstated a few hours later.

GBP/EUR saw a 0.5-1 cent drop, however, as concerns were raised about how the latest tariff developments might influence the trade deal between the UK and the US, which was based on the previous framework.

EUR

Conversely, a significant amount of data is expected across Europe this week. The Eurozone headline Consumer Price Index (CPI) is expected to drop from 2.2% to 2% on Tuesday.

If confirmed, the data would indicate that inflation has returned to the European Central Bank's target—marking a significant milestone since the cost-of-living crisis began in 2022 and prompted a wave of global interest rate hikes driven by tighter monetary policy.

Despite this progress, the ECB is expected to continue cutting interest rates steadily, with another 25-basis-point cut to its main refinancing rate expected on Thursday, placing adjusting interest rates to 2.15%.

Later in the week, the bloc's GDP is expected to remain unchanged at 1.2%, while retail sales are forecast to ease from 1.5% to 1.4% when they're released on Friday.

Elsewhere in Europe, Switzerland's revised Q1 GDP came in stronger than expected at 0.5%, up from the initial estimate of 0.3%.

USD

The dollar continues to decline, conceding ground to most G10 currencies, as uncertainty surrounding trade tariffs under President Trump persists. This is fueling market uncertainty and currency volatility while also raising concerns about the impact on the US economy later this year.

Last week, the Personal Consumption Expenditure (PCE) caused additional weakness, as the Federal Reserve's preferred measure of inflation dropped from 2.7% to 2.5%. This is likely to pave the way for further interest rate cuts in the second half of this year.

There is also a string of data released to be aware of. The ISM Manufacturing PMI is announced later today and is forecast to increase slightly from 48.7 to 49.5 – just under the growth threshold of 50. This will be followed by US Federal Reserve Chair Jerome Powell's speech a few hours later.

Wednesday could see additional volatility, with employment change forecasted to jump from 62k to 115k, while the Services PMI is expected to edge up from 51.6 to 52.

The week concludes with Friday's labour market data, where nonfarm payrolls are projected to fall sharply from 177k to 130k. If confirmed, this could trigger further USD selling.

North of the border, Canada saw a modest boost last week as Q1 GDP was revised up from 2.1% to 2.2%. The Bank of Canada is expected to hold interest rates steady at 2.75% during its policy meeting on Wednesday as policymakers weigh global uncertainty against domestic resilience.

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.