The Pound Sterling has reversed its recent gains, and we anticipate further declines to 1.1807 against the Euro and 1.2850 against the USD in the coming days if equity markets continue to struggle. The key economic events this week are the Eurozone and UK PMI releases, while ongoing political developments in the US remain significant.

The Pound to Euro exchange rate peaked at 1.1928 last Wednesday and has been pressured since due to worsening global investor sentiment, largely driven by escalating fears of a China-U.S. trade war. The Pound remains vulnerable to risk, weakening as stock markets decline, as seen last week.

In the next five days, the performance of global stock markets could be a major factor in determining the behaviour of the Pound against its main counterparts. According to median forecasts from over 30 investment banks, further declines in the exchange rate are expected, bringing it closer to the targets for September 2024 and year-end, which are still below the current levels.

Looking at the economic calendar, the significant events for the Euro and Pound Sterling this week are the UK and Eurozone PMI releases on Wednesday. Updated consensus forecasts are available on our calendar. If Eurozone data exceeds expectations, the Euro could see further recovery. Similarly, if UK PMIs exceed expectations, the Pound could regain some recently lost ground. However, disappointing data could push the exchange rate toward the downside targets mentioned earlier, as weak data might prompt the Bank of England to cut interest rates on August 1.

In the US, the confirmation of the new Democratic Presidential Nominee is expected to impact all asset classes. Current Vice President Kamala Harris is favoured to replace Biden, but Gretchen Whitmer of Michigan and Gavin Newsom are also potential candidates. Following the assassination attempt, Trump continues to lead in the polls, but a new Democratic candidate could start reversing this trend.