By Kian Songra
Brace for another action-packed week, with high impact economic data and geopolitical developments set to shape sentiment across the FX landscape. The Pound has recently benefited from growing optimism surrounding UK-EU negotiations, and this week’s developments could prove pivotal in determining whether Sterling’s recent gains can be sustained.
Monday: Focus on Fed Speakers and UK-EU Diplomacy
While Monday is quiet on the data front, markets will tune in to a series of speeches from Federal Reserve policymakers, which could shed light on the timing and extent of future rate cuts. Any deviation from the current cautious tone may stir volatility in USD pairs.
On the UK side, attention is increasingly shifting towards diplomatic channels. The UK and EU will hold their first bilateral summit since Brexit on Monday, described by Prime Minister Sir Keir Starmer as a “really significant moment”. Sir Keir is expected to announce a deal when he meets European Commission President Ursula von der Leyen and European Council President Antonio Costa. The UK and European Union are aiming to secure agreements on security cooperation, youth mobility schemes, and post-Brexit trade facilitation. Analysts have cited optimism over these talks as one factor behind recent Sterling strength, especially as improved UK-EU relations may boost long-term investment prospects and market confidence.
Tuesday: Spotlight on BoE’s Huw Pill
With economic releases still limited, Tuesday’s main event will be a speech by Bank of England (BoE) Chief Economist Huw Pill. Traders will look for clues on the BoE’s inflation outlook and policy stance ahead of the next monetary policy decision. Given recent mixed signals in UK growth and inflation data, Pill’s comments could help clarify the internal BoE debate on when to start easing policy.
Wednesday: All Eyes on UK CPI
The midweek focus will sharply turn to the UK Consumer Price Index (CPI) data; a potential game-changer for Sterling. With inflation still running above target and the predicted figure to increase to 3.3%. Any upside surprise could challenge the market’s current expectations for BoE rate cuts later this year. In contrast, softer numbers may reinforce dovish bets and weigh on the currency. Notably, Wednesday is light on US data, giving the UK inflation figures more space to move GBP crosses.
Thursday: PMI releases on Both Sides of the Atlantic
Thursday will be the busiest session of the week, headlined by the S&P Global flash Manufacturing and Services PMIs from both the UK and the US. These timely indicators will offer a fresh read on economic momentum. For the UK, markets will want to see signs of continued recovery in the services sector and resilience in manufacturing to support the BoE’s cautious approach to rate cuts. For the US, investors will be looking for confirmation that growth remains robust enough to delay aggressive Fed easing. These PMI releases will likely inject volatility into GBP/USD and GBP/EUR pairs, particularly if they diverge materially.
Friday: UK Retail Sales and US Housing Data
Friday rounds off the week with UK Retail Sales, a critical gauge of consumer spending health. Recent data have been erratic, and any disappointment could revive concerns about domestic demand. Across the Atlantic, the US New Home Sales release may affect USD sentiment, especially if it points to renewed strength in the housing sector despite high interest rates.
Central Bank Rhetoric and Geopolitics
Beyond the data, central bank speeches throughout the week from the European Central Bank (ECB), BoE and Fed officials will be closely watched for signals on the timing and magnitude of rate cuts. Markets are currently pricing in a more aggressive cutting path for the Fed than the BoE, but this narrative could shift depending on rhetoric and incoming data.
Meanwhile, geopolitical developments, particularly any escalations in the Israel-Hamas conflict or the ongoing Russia-Ukraine war, could trigger moves in global markets. Market participants will also keep tabs on global trade talks, especially as the UK looks to diversify its post-Brexit partnerships while rekindling cooperation with Brussels.
This week offers no shortage of catalysts for Pound Sterling traders. With pivotal inflation data, PMI releases, UK-EU negotiations, and ongoing geopolitical tensions all in play, GBP volatility is likely to stay elevated. Those with upcoming requirements, should remain agile and closely attuned to both scheduled and unscheduled market-moving headlines. Get in touch with your currency consultant to discuss your options to mitigate the exposure of risk, ahead of any upcoming currency requirements.