GBP

The May change in payrolled employees out last month cast a gloomy pall on Sterling and UK assets generally. It suggested employers are reacting badly to the latest round of payroll tax increases. This means Thursday’s publication of May/June employment data is critical, perhaps even more than Wednesday inflation data which is expected to show little change from the previous month. By Thursday afternoon this week we (and the Bank of England) should have a clearer view of the extent of weakness in UK economic data, though the dismal monthly GDP print last week is not an optimistic sign.

EUR

Much as last week, this week presents little market moving data, though there will be a series of speeches by ECB officials. Now that ECB rates are at 2%, markets see room for at most an additional cut, and that not any time soon. European monetary policy has now settled into a holding pattern, and therefore the main driver for the Euro should be events elsewhere for now. Namely, the performance of the US economy and news of the Trump conflict with Fed chair Powell.

USD

Markets seem to be siding so far with chair Powell in its conflict with the Trump administration, and have almost ruled out any chance of a cut in rates at July’s Fed meeting. We look to June inflation on Tuesday to validate the Fed’s stance. Tariff feed through to inflation has been very limited so far, but we doubt this can last forever. Importers will eventually run out of the inventory they accumulated earlier in the year before tariffs hit, and prices should adjust upwards, especially given the background of healthy growth in consumer spending. Meantime, the dollar seems to need some catalyst before it breaks down to lower lows, and a healthy inflation print is unlikely to provide it.