Weekly currency forecast: Will cooling UK inflation see the pound slump? 

Last week the US dollar rocketed to a five-month high following hot inflation figures, while dovish forward guidance from the European Central Bank (ECB) weighed heavily on the euro. 

This week could bring volatility to the pound amid some high-impact UK data. Most notably, an expected cooldown in UK inflation could dent GBP. 

Pound  

A lack of data through most of last week left the pound vulnerable to volatility, leading to mixed movement in GBP exchange rates. UK GDP growth on Friday added to the uncertainty, as analysts took differing views of the 0.1% economic growth in February. 

This week brings a slew of UK data and Bank of England (BoE) speeches. The country’s latest consumer price index on Wednesday may be the most impactful release, with an expected cooling of inflation potentially dragging GBP lower. 

Euro

The euro fell last week as the European Central Bank signalled a coming interest rate cut at its latest policy announcement, with markets now betting heavily on a June rate cut. 

Looking at the week ahead, Germany’s latest ZEW economic sentiment index could provide EUR with some much-needed support. Forecasters expect to see a further increase in investor optimism in the Eurozone’s largest economy this month. 

US dollar  

The US dollar surged to a five-month high last week after the latest US consumer price index exceeded forecasts, revealing an uptick in inflation in March. This saw markets dramatically reprice expectations for coming Federal Reserve interest rate cuts, catapulting USD higher. 

High-impact US economic data is thin on the ground this week. However, USD could remain supported amid the ongoing pullback in Fed rate cut bets. A souring market mood amid escalating tensions in the Middle East could also support the safe-haven ‘greenback’. 

Australian dollar  

An upbeat market mood initially lifted the risk-sensitive Australian dollar last week. However, sentiment soured as the week went on, seeing the ‘Aussie’ relinquish its gains and fall against its stronger rivals. 

This week AUD could face steeper losses as Australia’s latest jobs data is forecast to show an uptick in unemployment. In addition, a prevailing risk-off mood could weigh on the currency.