Escalating tensions in the Middle East, in the wake of the US strikes on Iranian nuclear sites over the weekend, could trigger notable volatility in the currency market this week, with investors likely to favour safe-haven assets like the US dollar.
Last week’s key rate movements
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GBP/EUR – Down 0.6% on the week
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GBP/USD – Down 0.9% on the week
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EUR/USD – Down 0.2% on the week
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AUD/USD – Down 0.5% on the week
Pound (GBP)
Following a small bump in the pound (GBP) from the UK’s latest PMI figures, GBP investors will look to comments by Bank of England (BoE) Governor Andrew Bailey for fresh impetus this week. If he continues to push back against an expected August interest rate cut, Sterling will likely strengthen.
Euro (EUR)
After opening the week on the back foot in response to underwhelming Eurozone PMIs, the euro (EUR) may be able to mount a swift recovery if Germany’s business climate index continues to rise through June.
US dollar (USD)
The US dollar (USD) is likely to catch bids this week as tensions in the Middle East drive a flight to safety. Any upside in the ‘greenback’ may then be reinforced by hawkish Federal Reserve bets, assuming Fed Chair Jerome Powell remains reluctant to commit to rate cuts as he testifies before Congress.
Australian dollar (AUD)
The Australian dollar (AUD) may face an uphill battle this week. In addition to notable risk-off flows, demand for the ‘Aussie’ may also be undermined by Australia’s monthly CPI indicator, which is forecast to report a deceleration in inflation last month.
South African rand (ZAR)
Tensions in the Middle East are likely to leave investors wary of emerging-market currencies this week. However, a potential bright spot for the South African rand (ZAR) could be the latest domestic consumer confidence figures, if they report a marked improvement in morale.
Canadian dollar (CAD)
While the Canadian dollar (CAD) stands to benefit from the continued oil price rally, another weak domestic inflation print is likely to stoke Bank of Canada (BoC) rate cut speculation and cap CAD’s upside potential.
New Zealand dollar (NZD)
Weak market risk appetite and a narrowing of New Zealand’s trade surplus in May will likely drag on the New Zealand dollar (NZD) this week.
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