Introduction

Global markets saw a volatile week, with currencies caughtbetween rising inflation concerns, higher oil prices and growing questionsaround economic growth.

Sterling came under pressure from higher UK borrowing costs,while the US dollar was supported by stronger-than-expected employment data.The euro faces an important week ahead, with the European Central Bank meetingon Thursday.

With US inflation also due on Friday, next week could bringfurther volatility across GBP, EUR and USD.

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🇬🇧 GBP — Sterling

Sterling had a challenging week as concerns around UKborrowing and inflation came back into focus.

A global sell-off in government bonds pushed UK borrowingcosts higher, with long-term UK borrowing costs reaching their highest levelssince 1998. This has increased attention on the UK's fiscal position and theBank of England's approach to interest rates.

Bank of England Chief Economist Huw Pill also suggested thatrates may need to rise to prevent inflation becoming entrenched, although hestressed that this did not necessarily signal a prolonged period of tightening.

Higher oil prices are another concern for the UK, increasingcosts for households and businesses and potentially keeping inflation elevated.

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This week

The UK has a busy economic calendar, with markets watching:

• BRC Retail Sales
• RICS House Price Balance
• UK GDP
• Trade Balance
• Industrial & Manufacturing     Production
• Construction Output

Friday's data will provide an important snapshot of the UK'seconomic health.

Our view: Sterling remains sensitive to inflation, UKborrowing costs and economic growth. Stronger-than-expected data could providesupport, but the broader fiscal picture remains a key risk.

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🇪🇺 EUR — Euro

The euro starts the week with one major event firmly infocus: Thursday's European Central Bank meeting.

Higher energy prices are creating a difficult environmentfor Europe. Rising oil costs could push inflation higher, while simultaneouslyputting pressure on consumers and economic growth.

This leaves the ECB facing a familiar challenge — balancinginflation against a potentially weaker economy.

European economic data last week provided some signs ofresilience, but markets remain cautious as geopolitical developments continueto influence energy prices and investor sentiment.

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This week

The ECB meeting on Thursday will be the main event.

Markets will be listening closely to President ChristineLagarde for any changes in the ECB's view on:

• Inflation
• Economic growth
• Energy prices
• Future interest-rate     policy

Germany's trade figures and further eurozone economic datawill also provide insight into the region's performance.

Our view: The euro's direction will depend heavily onwhether the ECB focuses more on renewed inflationary pressure or the risk ofweaker economic growth.

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🇺🇸 USD — USDollar

The US dollar had a mixed but important week.

The major event was Friday's employment report, which showedthe US economy added 162,000 jobs in August, beating expectations, whileunemployment remained at 4.1%.

The figures suggest that the US labour market remainsrelatively resilient.

However, markets are now focused on what this means forFederal Reserve policy. A strong labour market combined with persistentinflation could make it harder for the Fed to ease monetary policy.

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This week

The main focus will be US inflation data on Friday.

Markets will also receive:

• NFIB Business Optimism
• ADP employment data
• Weekly jobless claims
• Producer Price Index
• Consumer Price Index
• US consumer sentiment

The CPI release will be particularly important because itcould influence expectations around the Fed's next moves.

Our view: The dollar remains highly sensitive toinflation and Federal Reserve expectations. After last week's strong employmentfigures, Friday's inflation data could be the next major catalyst.

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The Week Ahead

The three currencies face very different domestic stories,but inflation remains the common theme.

GBP: UK growth, borrowing costs and inflation.

EUR: The ECB's response to higher energy prices andeconomic growth.

USD: US inflation and the Federal Reserve's nextmove.

With the ECB decision on Thursday and US inflationdata on Friday, the second half of the week could be particularly importantfor FX markets.

For businesses with international currency exposure, stayingclose to the market will be important as these releases could create increasedvolatility across the major currencies.

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