Weekly Round-Up & The Week Ahead

Weekly round-up and a look at the week ahead for EUR, GBP, and USD.

DAILY ANALYSIS

USD

President Trump approved a mission to target Iranian nuclear enrichment sites over the weekend inflicting ‘extremely severe damage and destruction’ to the sites. President Trump reported last week he will decide within the next two weeks whether to involve the US in the conflict between Iran and Israel which has been escalating at pace, however the weekend’s military action clearly set the tone moving forward. The Trump administration had made clear the US are not looking for a regime change but Trump’s tweets over the weekend will cause concern to global leaders. Brent crude, the international oil benchmark, rose to 5-month highs of $81.40 a barrel over fears Iran may cut off the key shipping Strait of Hormuz in response.

The Federal Reserve held strong last week voting to leave interest rates at 4.5% despite pressure from Trump to lower rates – recent data has been positive, but Fed Chair Jay Powell was keen to highlight the impact of tariffs have still not filtered through to the data points. This week will see US steel tariffs apply to US household white goods – which is expected to push prices higher for US consumers. A busy week ahead for markets with the current geopolitical landscape combined with a host of high impact data releases – S&P Global Manufacturing/Services PMI, Durable Goods, GDP and Core Personal Consumption Expenditures all released this week. In between Fed Chair Jay Powell also testifies. The greenback trades a little stronger following the weekend’s activities but again not making the traditional gains we would typically expect for the world’s foreign reserve currency.

GBP

Data out of the UK last week reinforced the market opinion of stagnant growth in the UK, Retail Sales declined heavily by 4%, far outpacing the forecast which had baked in a -1.8% reading. The Bank of England also voted to hold interest rates at 4.25%, MPC members voted 6-3 in favour of a hold – previously the vote had 7-2 signaling a more dovish approach. Governor Andrew Bailey backed the dovish sentiment up in the accompanying statement commenting ‘interest rates remain on a gradual downward path, although we’ve left them on hold today’. Foreign minister David Lammy met with his French and German counterparts on Friday in Geneva to discuss the current situation in Iran – Lammy had previously urged Iran to return to the negotiation table.

S&P Global PMI data for June released this morning finally offered a glimmer of positivity as all three data sets, Manufacturing, Services and Composite figures recorded at or above forecast. Manufacturing data improved to 50.7 versus 50.3 – any reading above 50 signals expansion. Gross Domestic Product data for Q1 released on Friday is the only notable release out of the UK this week. BoE members Megan Greene, Dave Ramsden, Sarah Breeden, Clare Lombardelli, Huw Pill all speak this week as well as governor Andrew Bailey making two appearances.

EUR

The NATO summit due to take place Wednesday will now hold even more importance as global fears increase over the Middle East conflict – NATO put forward the requirement for members to increase defense spending to 5% of GDP however Spanish Prime Minister Pedro Sanchez has reportedly signed a deal with Nato allowing Spain to opt out of the requirement. Sanchez addressed the nation citing the deal ‘safeguards Spain’s sovereignty while ensuring the success of the Nato summit’. The deal will now raise questions over what will be agreed on Wednesday as the objective of the meeting was for a display of unity and commit to Trump’s demand of countries increasing their defense spending.

A relatively quiet week for the Eurozone both this week and last – CPI data for the bloc released last week remained at 2.3% for May. Eurozone and German PMI data released this morning alongside Eurozone Consumer Confidence released later in the week are the key releases for the week. European Central Bank president Christine Lagarde also delivers a speech tomorrow ahead of the EU leaders summit which begins on Thursday.

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