Global Themes

GBP/USD is down by over 1 percent since reaching 5-month highs last week as traders take profit on the UK currency’s strong post-UK election rally. The slide could continue following Tuesday’s 09:30 UK inflation data and Wednesday’s BOE meeting minutes at 09:30 which may be dovish. Another batch of poor US economic data on Friday weighed on the US dollar but the greenback has rallied this morning before Wednesday’s FOMC meeting minutes at 19:00. EUR/USD has fallen 0.6 percent today. Economists believe several Euro Zone reports this week will show the region’s economic rebound slowing. Tuesday’s German ZEW Index at 10:00 is predicted to fall which could weaken the Euro. Greece’s debt negotiations are on-going and continue to move towards a more critical timeline as the government’s cash runs out. Japan and Norway will publish GDP data on Wednesday morning, with NOK at risk if a Q1 contraction leads investors to price in a rate cut.

EUR

The Euro rallied to a 3-month high against the US dollar on Friday after poor US economic data releases. The Euro also continues to benefit from a recent sharp rise in Euro Zone government bond yields. The move in bonds reflects optimism that deflation problems in the Euro Zone are clearing up and the economy rebounding more quickly. Consequently the ECB may have to consider trimming the size of its QE program later this year. Economists believe several Euro Zone reports this week will show the region’s economic rebound slowing. Tuesday’s German ZEW Index release at 10:00 is predicted to fall, while Thursday’s Euro Zone PMI survey’s may show a slower pace of expansion in key industries. Greece’s debt negotiations are on-going and continue to move towards a more critical timeline as the government’s cash runs out.

USD

The US released another batch of weaker-than-expected economic data on Friday, leading more traders to question the outlook for the US dollar over the next 1-3 months. The data showed industrial output shrank 0.3 percent in April while consumer confidence fell to 2014 lows in May. Consequently the US dollar fell last week to its weakest since February 06 against the Euro. Dovish Fed member Charles Evans said today that US rate hikes may held back until 2016 unless inflation levels pick-up. The comments will put Friday’s 13:30 inflation report top of mind this week. If the report comes in below expectations the US dollar could suffer more losses. However, on Wednesday night at 19:00 minutes from the Fed’s April meeting could show policymakers confident of the US economy gaining momentum in Q2. This would be USD positive.

GBP

GBP/USD is down by over 1 percent since reaching 5-month highs last week as some analysts say Sterling’s strong post-election rally has run its course. Following the unexpected election result on the night of May 7th, GBP/USD appreciated by around 7 cents in 6 trading sessions. The result also pushed GBP/EUR towards a 7-year high. However, GBP/EUR has fallen more than 2 percent since Thursday’s highs. UK Chancellor George Osborne has announced new government spending cuts. The news has put downward pressure on Sterling this morning amid bets that investors may be underestimating the negative impact on UK economic growth from government austerity. Sterling’s post-election gains could continue to unravel if Tuesday’s UK inflation data at 09:30 and Wednesday’s 09:30 BOE minutes are dovish.