The single currency clawed back some losses on EURUSD after four consecutive days of decline, despite weak German inflation. May Consumer Price Index increased by 0.2% month on month, which was marginally below the 0.3% expected, with year on year inflation falling from 2.0% in April to 1.4% in May. This lowest inflation level since April last year strengthens the case for an easing bias in the European Central Bank meeting this Thursday, as the headline inflation stubbornly refuses to move towards the ECB’s mid-term target of 2.0%. The relation between tighter labour markets and higher inflation finally appears to strengthen, however, these higher wages then fail to make their effects felt in the inflation rates. This derails one of the main supportive arguments of the ECB for confidence in their inflation target, and if it wouldn’t have been for rising oil prices, the ECB would be even further removed from hitting the mark. In short, there is very little to support a more hawkish shift for the ECB meeting this Thursday, while arguments for further easing and a generous TLTRO programme remain abound. As a result, German 10-year bond yields hit fresh all-time lows on Friday, providing with another fundamental reason why the single currency looks unattractive to many investors.


The continued uncertainty about who will succeed Theresa May – and based on what agenda – continued to weigh on sterling last week, as it was the worst G10 performer together with the oil price sensitive currencies CAD and NOK. How polarised the country remains on the Brexit topic once again became abundantly clear in a YouGov voting intentions poll that had the Liberal Democrats top the list, with the Brexit party coming in second. British MP’s of the Conservative Party, potentially for the first time in history, suddenly appear very representative for society as the internal divides on the topic are as wide as those in the rest of the country. This implies that a new Conservative party leader will face the herculean task of uniting the Party behind one direction. This may prove a mission impossible, which means the uncertainty a General Election would bring remains a real risk for sterling in the coming months. This week US President Donald Trump is visiting the UK, but developments in the Conservative Party leadership contest will likely be the main driver of sterling price action this week.


Disappointment was Friday’s theme for the greenback after it concluded a weak of advances in the G10 currency space with a day of weakness that had the currency fall towards the bottom of the G10 currency board. This move was likely led by market pricing for a Federal Reserve rate cut, which rose above 50% for the July meeting on the back of increased trade war risks to the economy and soft inflation figures. The Personal Consumption Expenditure inflation gauge that came out on Friday was actually marginally positive, with the April figure coming in on target while the March data saw upwards adjustment. Today sees the ISM Manufacturing Purchasing Managers Index at 15:00 BST, with Fed Chair Jerome Powell speaking about monetary policy on Wednesday. The ISM Non-Manufacturing PMI on Thursday and Labour market data on Friday then conclude an interesting week for the greenback later.


The loonie stood out from the other major currencies on Friday – unfortunately in a negative way as the whopping 5% price drop on WTI on Thursday was followed by another shocker of a fall in oil prices on Friday.  Another 5% got shaved off the price per barrel on Friday, which, some argue, indicates CAD is actually holding quite well given it even managed to roughly break even against GBP and USD at the back end of last week, despite this 10% dramatic decrease in oil prices.