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How politics, inflation, and interest rates could impact markets

Pound - GBP

Sterling climbs as Dollar weakens

Last week, the Pound was able to climb against the US Dollar while the Stateside currency weakened across the board. Additionally, the Pound rose when Bank of England (BoE) Governor Mark Carney suggested that there was still an opportunity to increase interest rates. Meanwhile, UK politics saw Theresa May step down, leaving the Conservative Party leadership race to get underway. If a Eurosceptic candidate takes the top spot, it’s possible the Pound could soften as markets weigh up the likelihood of a hard Brexit. Conservative Party candidates must officially declare they’re throwing their hat into the ring before the end of today so that voting can begin on Thursday. Some key UK data will also be released this week, including UK growth numbers and labour market data. 

Euro - EUR

All eyes on Draghi

The Euro experienced some volatility last week when the European Central Bank (ECB) kept interest rates on hold but suggested it would provide more stimulus if needed. The Euro also gained against the US Dollar last week as the Buck softened. ECB President Mario Draghi will be speaking on Wednesday and markets will be watching to see if he elaborates any more on the state of the economy and the central bank’s plans. On Thursday, moderately influential Eurozone Industrial Production data for April will be revealed, along with the final German inflation numbers for May. 

US Dollar - USD

Cuts on the horizon 

The US Dollar has been softer in recent sessions as Federal Reserve policymakers hinted that the central bank might need to cut interest rates. Additionally, the latest US labour market data came in far worse than expected, which caused the US Dollar to fall against other major currencies on Friday. This week, more highly influential data will be released, which could cause more fluctuations in the USD exchange rate. The US Consumer Price Index will reveal May’s level of inflation, with forecasts suggesting only 0.1% on the month, and a fall from 2.0% to 1.9% on the year, an event which may place more pressure on the Buck. Advance Retail Sales data out on Friday may cause further market movement. 

Australian Dollar - AUD

RBA chops rates

The Australian Dollar remained relatively stable last week, despite the Reserve Bank of Australia (RBA) cutting interest rates to a record low of 1.25% in a widely expected move. One of the most interesting days for Australian data this week will be Thursday when the latest Unemployment Rate and Employment Change numbers reach the market. It’s expected that the unemployment level may fall, which could provide the Aussie Dollar with a boost. However, geopolitical tensions and risk sentiment will also be factors in the way the Australian Dollar trades this week. 

New Zealand Dollar - NZD

Chinese data in focus

Last week, comments emerged from the Reserve Bank of New Zealand (RBNZ) that interest rates would be on hold for the foreseeable future. Investors will be looking towards the next monetary policy meeting on June 26th to find out more about the bank’s stance. There are a few economic releases this week which could impact the New Zealand Dollar, such as Thursday’s manufacturing data. One crucial factor for both the Aussie and Kiwi Dollars at the moment is investor sentiment, as well as data from the Oceanic nations’ largest trading partner, China. 

Canadian Dollar - CAD

Canada's labour market impresses

The Canadian Dollar was able to climb last week, particularly against the US Dollar, after both the US and Canada released labour market data. While the US produced weaker-than-forecast numbers, Canada surprised to the upside, with better-than-expected figures. Not only did the economy show 27.7K more people were in work, but it also revealed that wage growth had held steady instead of falling as forecast, and unemployment had dropped from 5.7% to 5.4%. This week, the majority of Canadian data will relate to the state of property and the housing market. Monday will see the release of Housing Starts and Building Permits, and Thursday will close the week with the New Housing Price Index; all three pieces could be moderately influential on the Loonie exchange rate.