A busy week lies ahead, filled with significant data releases, events, and Q3 US earnings reports, all with the potential to move markets.
The ECB is expected to keep interest rates unchanged at Thursday’s meeting but will likely provide further guidance suggesting rate cuts at the September 12 meeting. Financial markets are currently pricing in an additional 45 basis points of rate cuts for 2024.
Next week's economic calendar is dominated by inflation reports from Canada, the UK, the Euro Area, and Japan. Additionally, China's Q2 GDP, UK employment data, and German and Euro Area ZEW sentiment readings will be released. These data points will be spread throughout the week, adding volatility to various FX pairs. If this week’s inflation and wage figures are supportive, we forecast GBP/EUR to reach a target of 1.1985 in the coming days. However, if the data falls short, a decline to our downside target of 1.1768 is possible. Friday’s Retail Sales report is also crucial, with forecasts for June at approximately -0.6%, compared to a solid 2.9% previously. Any positive reading is likely to support Sterling.
Pound Sterling’s strong performance has placed it at the top of the G10 currency basket for 2024, though challenges remain. An overbought Pound will be increasingly vulnerable to disappointing data releases (excluding England’s disappointing performance against Spain!).
Across the pond, The week has begun with a stronger US dollar, driven by the renewed "Trump trade" following Saturday's assassination attempt on the former president. This development increases the likelihood of a Trump victory, and his proposed tax cuts and trade tariffs, which are viewed as inflationary, may compel the Federal Reserve (Fed) to maintain high US interest rates for a longer period.
