British Pound (GBP)

The British Pound remained one of the stronger major currencies last week as investors continued to believe that the Bank of England will be slower than other central banks when it comes to cutting interest rates. Persistent inflation and resilient wage growth have supported this view, helping Sterling maintain its strength.

However, some technical indicators now suggest that Sterling has entered overbought territory. This means the Pound has risen quite quickly over recent weeks, and some investors may begin taking profits. While this does not necessarily signal a reversal, it can sometimes lead to a period of slower gains or a short-term pullback before the currency resumes its longer-term trend.

Looking ahead, there are no major UK inflation releases scheduled this week, so Sterling is likely to take its direction from overseas events. Investors will be paying close attention to any speeches from Bank of England Governor Andrew Bailey or other Monetary Policy Committee members, as any indication that UK interest rates will remain higher for longer could provide further support for the Pound. Conversely, if policymakers hint at earlier rate cuts, Sterling could come under pressure. Much of the Pound's movement this week is also expected to be influenced by the US Consumer Price Index (CPI) inflation data due on Tuesday 14 July, as this is likely to drive sentiment across the wider foreign exchange market.

Euro (EUR)

The Euro traded in a relatively narrow range last week as investors continued to assess the outlook for the Eurozone economy following recent European Central Bank decisions. While inflation has eased, concerns remain over sluggish economic growth across several member states, limiting the Euro's ability to make stronger gains.

This week, attention will turn to Eurozone Industrial Production on Wednesday 15 July, which will provide another indication of the region's economic momentum. Investors will also be listening for any comments from ECB President Christine Lagarde. Stronger economic data or a more cautious approach to future interest rate cuts could support the Euro, while weaker data or a more dovish tone from the ECB could see the currency lose ground.

US Dollar (USD)

The US Dollar softened slightly last week as investors waited for clearer signals on when the Federal Reserve may begin lowering interest rates. Inflation remains the key factor influencing those expectations.

The biggest event this week is the release of the US Consumer Price Index (CPI) on Tuesday 14 July, which is widely expected to be the most important market-moving event of the week. If inflation comes in above expectations, markets are likely to push back expectations of interest rate cuts, which would typically strengthen the US Dollar. If inflation is lower than forecast, investors may expect the Federal Reserve to ease monetary policy sooner, potentially weakening the Dollar. Markets will also be closely watching any comments from Federal Reserve Chair Jerome Powell and other Fed officials throughout the week for further guidance on the outlook for interest rates.

Outlook for the Week Ahead

This week's key dates for currency markets are Tuesday 14 July, when the US CPI inflation figures are released, and Wednesday 15 July, when Eurozone Industrial Production data is published. While the UK has a quieter economic calendar, comments from central bank officials could still influence Sterling. Overall, the US inflation report is expected to be the biggest driver of exchange rates across the market and could lead to increased volatility throughout the week.

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