• The British pound initially pulled back a bit against the US dollar in the early hours on Monday but has since really started to take off to the upside.
• As we are writing, we are threatening the 1.28 level, an area that I do think is rather important in this pair and extends possibly all the way to the 1.29 level as far as resistance is concerned.
• A lot of this was kicked off to the idea that PMI manufacturing a miss and actually showing a contraction, but it’s worth noting that was the ISM numbers while the S&P Global Manufacturing PMI numbers came out better than anticipated.

So, I don’t know how much momentum we’re going to have here, at least based on that alone. Either way, Wall Street loves the idea of rate cuts under any circumstances, so that will probably get New York to sell the dollar.

Will the rest of the world follow suit?

• 

The question will be the follow through and whether or not the rest of the world goes right along with this with the 1.29 level being very likely to be a bit of a barrier. Underneath we have the 1.27 level that offers support and that is probably something worth paying close attention to.

Short-term pullbacks will almost certainly attract a certain amount of attention. And then after that, we have the 50-day EMA coming into the picture near the 1.2650 level offering support. So even though I’m not necessarily too excited about selling the US dollar, I do think this is more or less a buy on the dips type market. And the question now is whether or not GBP/USD can actually break out.

We could just chop back and forth. We’ve seen a lot of that in other major currency pairs, but that will remain to be seen. This has been the case in a few other ones that I watch, especially the AUD/USD, but at this point in time it certainly looks like everybody is trying to do everything they can to turn the market around and go positive in a risk sentiment type of move.

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GBP/JPY Forecast Video for 03.03.23

British Pound vs Japanese Yen Technical Analysis

The British pound has initially fallen against the Japanese yen during the trading session on Thursday, as we continue to see a lot of noisy behavior in this market. We had recently seen the British pound spike well above the ¥165 level, only to sell off quite drastically. That being said, the reality is that the British pound is not the major force in this market. The big driver of where everything is going is more likely than not going to remain the Japanese yen as the Bank of Japan continues its yield curve control policy. Remember, the Japanese are trying to keep the 10 year yield at 50 basis points or lower, meaning that they are printing yen in order to buy those bonds.

The Bank of Japan continues to be one of the few central banks around the world with loose monetary policy, and therefore a lot of traders will continue to beat up on the Japanese yen. The shooting star that formed on Tuesday should be thought of as major resistance, but it certainly looks as if this pair is going to do everything it can to test that area. It’s not a huge surprise we sold off from where we did, because we touched the top of the huge wipeout candlestick from last year.

If we do pull back from here, I believe that the 200-Day EMA which currently sits near the ¥162 EMA, should end up being a nice area of support. Anything below there gets interesting, but at this point it does not look like the Japanese yen is suddenly going to strengthen, and it would almost certainly would need to see yields drop around the world in order for that to happen. Remember, as those yields continue to rise in other markets, it puts more bearish pressure on Japanese bonds, driving yields higher, which means that the central bank has to step in and start buying yet again. It’s a bit of a vicious feedback loop that the Japanese find themselves in at the moment. Because of this, I remain bullish of the market.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

More From FXEMPIRE:

EUR/USD Current price: 1.0848

• The European Central Bank decision and United States employment-related figures take centre stage.
• Updates on manufacturing output in the US and the EU are driving currencies in the near term.
• EUR/USD is mildly bullish in the near term, caution likely to limit advances.

The EUR/USD pair trades around 1.0850 ahead of the United States (US) opening, recovering from an intraday low of 1.0827, pretty much unchanged for the day. The pair seesawed between gains and losses throughout the first half of the day as investors gear up for upcoming first-tier events. Following the US inflation update on Friday, the focus shifts to growth and employment-related figures this week, alongside the European Central Bank (ECB) monetary policy meeting.

So far, the Hamburg Commercial Bank (HCOB) has released the final estimates of the Eurozone Manufacturing PMIs, with the German figure confirmed at 45.4. However, the EU index suffered a downward revision from 47.4 to 47.3 in May. S&P Global will publish the US estimate after Wall Street’s opening, while the official ISM Manufacturing PMI will be out afterwards.

Nevertheless, market players will likely wait for upcoming events before lifting directional bets. The US will publish JOLTS Job Openings, the ADP survey on private job creation, and the usual weekly unemployment data in the upcoming days, ahead of the Nonfarm Payrolls (NFP) report, which will be out next Friday. Also, the ECB is widely anticipated to trim interest rates by 25 basis points (bps) next Thursday, and it is yet to be seen how the market will react to the fact.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it met buyers just ahead of 1.0824, the 23.6% Fibonacci retracement of the rally from 1.0600 to 1.0894. The risk skews to the upside, although the momentum is missing. EUR/USD develops above all its moving averages, with a bullish 20 Simple Moving Average (SMA) converging with the mentioned Fibonacci support level while advancing above the longer ones. Technical indicators, in the meantime, stand within positive levels but without directional strength.

In the near term, and according to the 4-hour chart, it’s clear bears remain side-lined. The pair briefly fell below its 20 and 100 SMAs, but quickly recovered, while the 200 SMA aims higher, far below the current level. Finally, technical indicators turned modestly higher within positive levels, although without enough strength to confirm another leg north.

Support levels: 1.0820 1.0780 1.0740

Resistance levels: 1.0910 1.0960 1.1000

EUR/USD Current price: 1.0848

• The European Central Bank decision and United States employment-related figures take centre stage.
• Updates on manufacturing output in the US and the EU are driving currencies in the near term.
• EUR/USD is mildly bullish in the near term, caution likely to limit advances.

The EUR/USD pair trades around 1.0850 ahead of the United States (US) opening, recovering from an intraday low of 1.0827, pretty much unchanged for the day. The pair seesawed between gains and losses throughout the first half of the day as investors gear up for upcoming first-tier events. Following the US inflation update on Friday, the focus shifts to growth and employment-related figures this week, alongside the European Central Bank (ECB) monetary policy meeting.

So far, the Hamburg Commercial Bank (HCOB) has released the final estimates of the Eurozone Manufacturing PMIs, with the German figure confirmed at 45.4. However, the EU index suffered a downward revision from 47.4 to 47.3 in May. S&P Global will publish the US estimate after Wall Street’s opening, while the official ISM Manufacturing PMI will be out afterwards.

Nevertheless, market players will likely wait for upcoming events before lifting directional bets. The US will publish JOLTS Job Openings, the ADP survey on private job creation, and the usual weekly unemployment data in the upcoming days, ahead of the Nonfarm Payrolls (NFP) report, which will be out next Friday. Also, the ECB is widely anticipated to trim interest rates by 25 basis points (bps) next Thursday, and it is yet to be seen how the market will react to the fact.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it met buyers just ahead of 1.0824, the 23.6% Fibonacci retracement of the rally from 1.0600 to 1.0894. The risk skews to the upside, although the momentum is missing. EUR/USD develops above all its moving averages, with a bullish 20 Simple Moving Average (SMA) converging with the mentioned Fibonacci support level while advancing above the longer ones. Technical indicators, in the meantime, stand within positive levels but without directional strength.

In the near term, and according to the 4-hour chart, it’s clear bears remain side-lined. The pair briefly fell below its 20 and 100 SMAs, but quickly recovered, while the 200 SMA aims higher, far below the current level. Finally, technical indicators turned modestly higher within positive levels, although without enough strength to confirm another leg north.

Support levels: 1.0820 1.0780 1.0740

Resistance levels: 1.0910 1.0960 1.1000

Weaker-than-expected labor market data could fuel investor expectations of a September Fed rate cut. Deteriorating labor market conditions may affect wage growth, consumer confidence, and disposable income. Consumers could curb spending, dampening demand-driven inflation.

A softer inflation outlook would support a less hawkish Fed rate path.

Furthermore, investors should consider the job quit numbers. Economists expect job quits to decline from 3.329 million to 3.200 million. Employees are less likely to quit their jobs in a deteriorating labor market environment.

Other stats include factory orders. However, these will likely play second fiddle to the labor market data. The manufacturing sector accounts for less than 30% of the US economy. Nevertheless, higher-than-expected numbers could ease concerns about a hard economic landing.

Economists forecast factory orders to increase by 0.6% in April after rising by 1.6% in March.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on service sector PMI, household spending numbers from Japan, and the US Jobs Report. A jump in US service sector activity and tighter US labor market conditions could tilt monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY break above the 156.5 handle could give the bulls a run at the 158 handle. Furthermore, a USD/JPY return to the 158 handle could signal a rise to the April 29 high of 160.209.

Bank of Japan commentary and US labor market data need investor consideration.

Conversely, a USD/JPY break below the 155.5 handle could give the bears a run at the 50-day EMA.

The 14-day RSI at 51.15 suggests a USD/JPY move to the April 29 high of 160.209 before entering overbought territory.

• EUR/USD flirted with monthly highs around 1.0890.
• The Greenback lost further impetus along with US yields.
• The US ISM Manufacturing PMI disappointed expectations in May.

The US Dollar (USD) traded defensively at the beginning of the week, providing extra wings to the risk-associated universe and encouraging EUR/USD to add to its ongoing recovery and approach the key 1.0900 barrier.

The pair rebounded and advanced for the third straight day due to an accelerating downward trend in the Greenback and an equally marked drop in US yields across the spectrum.

Meanwhile, speculation that the Federal Reserve (Fed) might maintain its restrictive stance longer than expected continued to rise, supported by recent hawkish comments from Fed officials. However, Monday’s pale prints of the US ISM Manufacturing seem to have tilted the scales to a probable reduction of rates in November.

Indeed, according to the CME Group’s FedWatch Tool, there is a nearly 73% probability of lower interest rates by the November 7 meeting.

Regarding the European Central Bank (ECB), a rate cut at the imminent June 6 meeting is vox populi, despite May’s higher inflation figures in Germany and the broader euro area. Doubts persist, however, when it comes to factor in potential cuts beyond the summer.

Looking ahead, the incipient recovery in some economic fundamentals in the Eurozone, coupled with the loss of momentum of the US economy, reinforce the narrowing of the gap between the Fed and the ECB monetary policy, therefore favouring the rebound in EUR/USD.

However, in the longer run, given the rising likelihood of the ECB reducing rates before the Fed, the potential for further weakness in EUR/USD should be considered in the next few months.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bulls maintain control, EUR/USD may confront the May high of 1.0894 (May 16), followed by the March top of 1.0981 (March 8) and the weekly peak of 1.0998 (January 11), all before hitting the critical 1.1000 level.

The resumption of the bearish tone, on the other hand, may send the pair to the weekly low of 1.0788 (May 30), an area underpinned by the 200-day SMA. The loss of this region could drag spot to the May low of 1.0649 (May 1), prior to the 2024 bottom of 1.0601 (April 16) and the November 2023 low of 1.0516 (November 1). Once this zone is breached, the pair may go for the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the 1.0400 round milestone.

So far, the 4-hour chart indicates a strong return. The 55-SMA at 1.0845 is the next upward obstacle, followed by 1.0894 and 1.0942. Looking south, 1.0788 is first, followed by 1.0766 and the 200-SMA at 1.0760. The relative strength index (RSI) rose over 50.

• EUR/USD flirted with monthly highs around 1.0890.
• The Greenback lost further impetus along with US yields.
• The US ISM Manufacturing PMI disappointed expectations in May.

The US Dollar (USD) traded defensively at the beginning of the week, providing extra wings to the risk-associated universe and encouraging EUR/USD to add to its ongoing recovery and approach the key 1.0900 barrier.

The pair rebounded and advanced for the third straight day due to an accelerating downward trend in the Greenback and an equally marked drop in US yields across the spectrum.

Meanwhile, speculation that the Federal Reserve (Fed) might maintain its restrictive stance longer than expected continued to rise, supported by recent hawkish comments from Fed officials. However, Monday’s pale prints of the US ISM Manufacturing seem to have tilted the scales to a probable reduction of rates in November.

Indeed, according to the CME Group’s FedWatch Tool, there is a nearly 73% probability of lower interest rates by the November 7 meeting.

Regarding the European Central Bank (ECB), a rate cut at the imminent June 6 meeting is vox populi, despite May’s higher inflation figures in Germany and the broader euro area. Doubts persist, however, when it comes to factor in potential cuts beyond the summer.

Looking ahead, the incipient recovery in some economic fundamentals in the Eurozone, coupled with the loss of momentum of the US economy, reinforce the narrowing of the gap between the Fed and the ECB monetary policy, therefore favouring the rebound in EUR/USD.

However, in the longer run, given the rising likelihood of the ECB reducing rates before the Fed, the potential for further weakness in EUR/USD should be considered in the next few months.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bulls maintain control, EUR/USD may confront the May high of 1.0894 (May 16), followed by the March top of 1.0981 (March 8) and the weekly peak of 1.0998 (January 11), all before hitting the critical 1.1000 level.

The resumption of the bearish tone, on the other hand, may send the pair to the weekly low of 1.0788 (May 30), an area underpinned by the 200-day SMA. The loss of this region could drag spot to the May low of 1.0649 (May 1), prior to the 2024 bottom of 1.0601 (April 16) and the November 2023 low of 1.0516 (November 1). Once this zone is breached, the pair may go for the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the 1.0400 round milestone.

So far, the 4-hour chart indicates a strong return. The 55-SMA at 1.0845 is the next upward obstacle, followed by 1.0894 and 1.0942. Looking south, 1.0788 is first, followed by 1.0766 and the 200-SMA at 1.0760. The relative strength index (RSI) rose over 50.

• The Euro has taken off against the British pound during the trading session on Friday, but it did of course face a few headwinds and it gave back about half the gains.
• This is a very interesting pair to me at the moment.
• We are sitting just above the 0.85 level, an area that of course is a large round psychologically significant figure and an area that previously had been support throughout the last several years.

So, I think this is an area where value hunters start to come back into the picture and if for some reason the ECB holds rates high for a little longer than anticipated, that could be what sends this market higher. Right now, we are basically at the bottom of a larger consolidation area between the 0.85 level and the 0.86 level and therefore I think it’s more of a buy on the dip market.

• 

Can we take off?

Whether or not we can take off to the upside remains to be seen, but it certainly looks like the support is rock solid. That being said, if we were to break down below the 0.8450 level, then it’s possible that the market could unwind to the 0.84 level, but I don’t think that’s very likely, at least not at the moment.

However, one thing that you can count on is a lot of choppy behavior in this market as that is the norm, as you can see on the chart. So, with this, you’re going to have to be patient, but it looks like a bounce is probably in the works over the next several weeks. Because of the nature of the EUR/GBP pair though, you will have to realize that there are going to be days where it seems like it’s going nowhere. However, you should also keep in mind that the pip value is much higher than most other pairs, so it does not take as big of a move as it would in many of the others that you might be used to trading.

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• Recently, risk appetite has been on the rise following the latest US inflation data while the US dollar has lost ground.
• According to forex trading, the GBP/USD exchange rate has risen to around the 1.2760 area after finding support at the 1.2700 level.
• However, the GBP/EUR exchange rate has fallen to 1.1730 after stronger-than-expected inflation data from the eurozone.

According to the economic calendar results, in line with agreed expectations, the US personal consumption expenditures (PCE) price index rose 0.3% in April, with the year-over-year rate holding steady at 2.7%. Core prices rose 0.2% on the month compared to expectations of 0.3%, although the annual rate was in line with expectations at a steady 2.8%. Moreover, there had been some concerns that the monthly rate would be stronger than expected and add to concerns about US inflation trends. As a result, there was an element of relief surrounding the 0.2% monthly increase.

ING Bank commented: “We need to see the inflation rate consistently hit 0.17% on a monthly basis to bring inflation down to 2% on an annual basis, so it’s still very hot, but the momentum is encouraging after some disappointment in early 2024.” Added, “Overall, this is a modest support for a September rate cut, but we need to see at least two more 0.2% readings between now and then, which is further evidence of a slowdown in consumer spending and a move in the unemployment rate to the upper 4.2% range perhaps. Anything is possible, but it’s not guaranteed.”

According to Scotiabank: “Price remains cohesive after rejecting the 1.28 resistance area at the beginning of the week. While the US dollar appears softer overall, losses are expected to stabilize around 1.27 today.” Overall, according to licensed trading platforms, the GBP/USD pair needs to break through the 1.2800 resistance level to gather any significant momentum.

Recently, the Eurozone headline inflation rate rose to 2.6% in May from 2.4%, slightly above the expected 2.5%. The core rate rose to 2.9% from 2.7%, above the market expectation of 2.7%. Moreover, the European Central Bank is bound to remain sensitive to inflation developments. There is a strong expectation that the ECB will cut interest rates at its June meeting by 25 basis points to 4.25%. Commenting on this, ING Bank stated, “With a full chorus of ECB Governing Council members once again singing about interest rate cuts, anything other than a 25 basis point cut this week would come as a huge surprise, not to mention a severe loss to the central bank’s reputation.”

He added; “In the past, interest rate cutting cycles have mainly been triggered by either recession or crisis. Fortunately, none of these things are threatening the eurozone economy at the moment. Therefore, there is no urgent need for the ECB to cut interest rates or engage in a longer series of rate cuts. Instead, the ECB will cut rates not because it has to, but simply because it can.

According to Scotiabank: “The modest pullback could revive thoughts of an earlier Fed cut, as pricing now reflects that the first full 25 basis point easing won’t come until December.”

In terms of UK data, business confidence data from Lloyds Bank showed strong progress for May to an 8-year high. Nationwide also reported a 0.4% increase in house prices for May with an annual increase of 1.6%. However, there was a slight drop in mortgage approvals to 61,100 for April from a revised 61,300 the previous month.

In this context, global developments dominated the pound’s movements.

• 

Technical forecasts for the GBP/USD pair today:

The upward trajectory of the GBP/USD exchange rate remains in place. As we mentioned before, based on the daily chart performance, the resistance level at 1.2775 will mark the beginning of the bulls’ control. To confirm the strength of this trend, it needs to move towards the psychological resistance level of 1.3000. Conversely, according to the daily chart performance, the support level at 1.2600 will remain the key point for the bears to regain control of the direction. Ultimately, we expect the GBP/USD rate to remain stable around its recent gains until the markets react to the central banks’ announcements this week, along with the U.S. employment figures.

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• At the end of last week’s trading, the Japanese yen stabilized against the US dollar after Japan confirmed that the government intervened in the forex market for the first time since 2022.
• Meanwhile, traders may not have been convinced by the bullish shift in the yen because investors wanted more intervention.
• According to forex trading, the US dollar against the Japanese yen USD/JPY price stabilizes around the resistance level of 157.30, close to the levels of Japanese intervention in the markets.

For its part, the Japanese Ministry of Finance confirmed on Friday that it spent $62.25 billion on currency intervention between April 26 and May 29. This action came after the yen collapsed to its lowest level in 34 years against the dollar. The last time the Japanese government participated in currency intervention was in October 2022. Although this announcement did not come as a surprise, traders may have wanted more. In addition, based on the comments, this may be the only measure Tokyo will use going forward. However, Japanese Finance Minister Shunichi Suzuki told CNBC earlier this month that his Favors supporting the yen to avoid a backlash from households and businesses.

This year, the Japanese yen has been under tremendous pressure, despite the Bank of Japan ending its negative interest rate policy and improving consumer sentiment. Overall, the yen is down 11.2% year-to-date against the dollar, and is set to post a monthly decline of 2.5%.

Meanwhile, in the United States, financial markets have been combing through the latest US inflation data, which confirmed that progress on inflation has stalled. As the report noted, “All eyes were on the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index. In April, the PCE price index rose 0.3% on the month and held steady at 2.7%. Moreover, core personal consumption expenditures, which exclude the volatile energy and food components, jumped less than expected at 0.2% and were flat at 2.8%.

The consensus was that PCE confirmed a pause in progress on inflation and that the latest leg in the inflation fight will be a slow grind. As a result, the Federal Reserve could keep interest rates higher for longer. Accordingly, investors are not expecting a rate cut until November, according to the CME FedWatch tool.

• 

USD/JPY Technical Analysis and Expectations Today

USD/JPY has now risen to trade at its 100-hour moving average. However, the pair still appears to have more room to run before reaching overbought levels on the 14-hour Relative Strength Index (RSI). In the near term, based on the hourly chart, USD/JPY appears to be trading within an ascending channel. The 14-hour RSI has also bounced back to move towards overbought levels. Therefore, bulls will target extended gains around 157.70 or higher at the 158.25 resistance. On the other hand, bears will look to pounce on pullbacks around 156.43 or lower at 155.87.

In the long term, based on the daily chart, USD/JPY appears to be trading within an ascending channel. Also, the 14-day RSI appears to support the upside as it approaches overbought levels. Therefore, bulls will look to ride the current winning streak towards 160.15 or higher to the 163 resistances. On the other hand, bears will look to pounce on longer-term pullbacks around 153.52 or lower at the 150.00 support.

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• Market participants are almost certain that the ECB will cut rates on Thursday.

• The interest rate gap between the Eurozone and the US will widen.

• The US core PCE price index showed an increase of 0.2% in April, slower than the previous month’s 0.3% increase.

The EUR/USD forecast is bearish as investors gear up for a European Central Bank rate cut this week. Meanwhile, the dollar stabilized after Friday’s inflation miss, which led to an increase in bets for a Fed rate cut in September. 

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Market participants are almost certain that the ECB will cut rates on Thursday. This will likely weaken the euro against the dollar as the rate gap between the Eurozone and the US widens. 

However, the path becomes less certain after Thursday, especially after last week’s Eurozone inflation report. Data on Friday revealed that inflation increased by 2.6% in May, bigger than the previous month’s 2.4% increase. This might cause the ECB to pause after Thursday, as inflation is moving away from the central bank’s target.

Meanwhile, the dollar had its first bearish month this year in May as US inflation eased, raising bets of a Fed rate cut in September. The first indicator of easing inflation was the Consumer Price Index report. More recently, the core PCE price index showed an increase of 0.2% in April, slower than the previous month’s 0.3% increase. Economists had expected the value to hold at 0.3%. Consequently, after the report, the likelihood of a Fed cut in September increased from 49% to 53%. 

If inflation continues with this downtrend, the Fed will be under more pressure to cut interest rates in September. Still, this will come well after the ECB’s first cut. 

EUR/USD key events today

• US final manufacturing PMI
• US ISM manufacturing PMI

EUR/USD technical forecast: Fluctuating between 1.0800 and 1.0880

On the technical side, the EUR/USD price trades in a range with support at 1.0800 and resistance at 1.0880. The sideways move came after a bullish trend that failed to continue beyond the 1.0880 resistance. Therefore, it is likely a corrective move that will lead to a continuation of the uptrend or a reversal.

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The price is pushing lower within the range and has punctured the 30-SMA after retesting the range resistance. Consequently, bears are in the lead. If it closes below the SMA, it will likely fall to retest the range support.

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At the time of writing, the GBP/EUR exchange rate traded at around €1.1731, virtually unchanged from Friday’s opening levels.

The Euro (EUR) began the week undermined by European Central Bank (ECB) interest rate cut bets, as ECB policymaker Klaas Knot echoed his colleagues recent sentiments that the ECB will begin unwinding its monetary policy in June.

Moving into mid-week trade, Germany’s latest GFK consumer confidence index printed higher than expected in June, rising from -24.0 to -20.9, ahead of market bets of a more modest -22.5 reading.

However, as the index confirmed another negative reading, any potential EUR gains were ultimately capped.

Furthermore, inflation in the Eurozone’s largest economy increased as forecast and rose from 2.2% to 2.4% for May’s reading.

Despite the hotter-than-forecast inflation reading from Germany, the common currency struggled to garner investor attention, likely due the common currency’s negative correlation with a rising US Dollar (USD).

On Thursday, the Euro remained subdued despite a duo of upbeat data releases. Unemployment in the bloc fell to a record low of 6.4% in April, while economic sentiment increased in May.

However, despite the positive data readings, the single currency failed to strengthen against its peers.

Moving into the end of the week, Friday saw the Eurozone’s latest inflation reading beat forecasts. Headline inflation rose for the first time in five months, increasing to 2.6%, meanwhile, core inflation rose to 2.9%.

This saw the single currency firm against its peers as signs of persisting inflation could prompt the ECB to adjust its current monetary policy outlook.

Pound Sterling (GBP) Undermined by Absence of Data

The Pound (GBP) began the week fluctuating against its peers despite a stronger-than-expected distributive trades survey from the Confederation of British Industry (CBI).

The survey showed a rise in retail trade in May, and confirmed an increase from a dismal reading in April, which lent the Pound some modest support.

On Wednesday, the Pound was supported by scaled-back Bank of England (BoE) interest rate cut expectations.

Following the announcement that the UK will hold a general election in July, the BoE announced it would be suspending all public appearances until after the election, thereby dampening any bets of a June rate cut, which served to marginally lift Sterling sentiment during mid-week trade.

However, the remainder of the week saw a scarcity of UK data releases, which in turn saw GBP struggle to find a clear trajectory for the remainder of the week.

GBP/EUR Exchange Rate Forecast: ECB Interest Rate Decision in the Spotlight

Looking ahead, the primary catalyst of movement for the Pound Euro exchange rate this week will undoubtedly be the ECB’s upcoming interest rate decision, scheduled for release on Thursday.

Following a slew of dovish ECB comments in recent weeks, markets are expecting that the European Central Bank will be the first central bank to deliver a rate cut this year.

Should the central bank indeed cut rates from 4.5% to 4.25% in its upcoming interest rate meeting, the common currency will likely plummet in the aftermath of the release.

Turning to the Pound, another week of minimal data may see Sterling continue to trade directionless.

The only data release of note will come in the form of the UK’s finalised PMI data for May.

On Monday, the UK’s manufacturing index is expected to rise from 49.1 to 51.3, and is set to enter expansion territory. If the data prints as expected, this could see Sterling begin the week firming against its peers.

On Wednesday, the all-important services index is forecast to increase, and remain in the expansion zone, which will likely buoy Sterling in mid-week trade.