By James Caley
Last week, sterling was mainly driven by shifting interest rate expectations. Markets continued to lean towards earlier Bank of England cuts, which kept the pound a little softer on dips, while the euro and the dollar were more sensitive to broader risk sentiment and what investors think the ECB and Fed can do next. The overall theme was familiar: when traders believe UK rates may fall sooner than elsewhere, it tends to cap GBP/EUR and leaves GBP/USD more vulnerable if the dollar finds support.
This week, the calendar is lighter on UK releases, so GBP/EUR may be pulled around more by what comes out of the eurozone, particularly Germany. Today, the German Ifo Business Climate survey is the first test. If it improves versus expectations, it can support the euro by easing fears around growth, which can pressure GBP/EUR and also help EUR/USD hold up. If it disappoints, it can have the opposite effect, especially if it reinforces the idea that the ECB will need to ease more quickly.
Mid week, on Wednesday 25th, German GfK consumer confidence will give another read on whether the domestic demand picture is stabilising. It is not always a major market mover on its own, but it can add to the narrative. A stronger reading can be modestly euro supportive, while a weaker print may leave the euro more sensitive into Friday’s inflation numbers.
Friday 27th is the key day. Preliminary inflation in France and Germany will be closely watched because it can shift expectations for the ECB’s next move. If German inflation prints higher than expected, the euro often benefits as the market leans towards fewer or later cuts, which can lift EUR/USD and push GBP/EUR lower. If inflation comes in softer, it can weigh on the euro, potentially lifting GBP/EUR and pressuring EUR/USD. With UK data relatively quiet, this is the clearest route for euro driven moves in both pairs.
Also on Friday, US PPI is the main dollar risk event. Producer prices matter because markets use them as a signal for pipeline inflation and what that might mean for Fed policy. A hotter than expected PPI print can support the dollar and weigh on both GBP/USD and EUR/USD. A softer number can do the reverse, easing dollar support and allowing both pairs to recover. Canada GDP and India GDP are less directly linked to our main pairs, but they can still affect global risk appetite at the margin, which can feed into broad USD moves.