Weekly currency forecast: Signs of sticky inflation to boost EUR and USD?

Hotter-than-forecast UK inflation boosted the pound last week, with Sterling hitting multi-month highs as markets scaled back Bank of England (BoE) interest rate cut bets.

This week, the latest inflation figures from the US and the Eurozone are due out. Could signs of sticky inflation boost the US dollar and the euro?

Pound

The pound strengthened last week as markets reined in their bets on a June rate cut from the Bank of England following the UK’s latest above-forecast inflation reading. Analysts also believe the BoE is less likely to cut rates in June now that the UK will be holding a general election on 4 July.

Turning to this week, market-moving UK economic data is thin on the ground. As such, speculation surrounding the UK’s upcoming election could impact the pound. With Labour and the Conservatives kicking off their election campaigns, their policy pledges could infuse GBP with volatility.

Euro

The euro fell against its stronger peers last week amid growing certainty that the European Central Bank (ECB) will cut interest rates at its meeting next Thursday.

The focus for EUR investors this week is the Eurozone’s preliminary consumer price index for May, due out on Friday. With inflation forecast to accelerate, an adjustment to ECB rate cut bets could boost the euro.

US dollar

The US dollar firmed last week as hawkish Federal Reserve meeting minutes and some strong US data saw markets scale back bets on multiple Fed rate cuts this year. However, a cheery market mood trimmed USD’s gains at the end of the week.

This positive mood has pressured the ‘greenback’ so far in this week’s session. However, the latest core PCE price index on Friday could support the US dollar, as the Fed’s preferred measure of inflation is forecast to show price pressures remain persistent.

Australian dollar

An increasingly downbeat market mood weighed on the risk-sensitive Australian dollar last week, with markets concerned about a more hawkish stance from the Federal Reserve.

This week, an expected cooldown in Australia’s monthly CPI indicator for April could dent AUD. Elsewhere, any shifts in risk appetite could drive volatility.