UK | GBP

GBP – Brexit and BoE give the pound whiplash

Last week

- The pound enjoyed some temporary gains last week when Bank of England (BoE) representatives sounded upbeat on the prospect of interest rate hikes. However, market optimism on whether interest rate hikes would be delivered faded when UK factory orders came in at their weakest level since late 2016.

- Meanwhile, British businesses announced struggles and Marks and Spencer's said it would be closing 100 stores to try and revive profits.

- UK inflation slipped to a 13-month low which saw the pound sink to fresh 2018 lows versus the US dollar (GBP/USD). GBP/USD hit levels of 1.32 last week. The UK also posted its worst growth figures in five years with just 0.1% expansion in Q1. In positive news, UK retail sales managed to reach an 18-month high, coming in at 1.5% in April.

- Bank of England Governor Mark Carney issued a warning on Brexit last week, suggesting that if the UK fails to secure a transition deal, it could have a significant adverse impact on the economy.

Week ahead

There isn't much by way of high-tier data out this week for the UK, but there are a handful of medium-tier ecostats that could influence the pound. UK consumer confidence and consumer credit numbers will be out on Wednesday and Thursday, followed by manufacturing data on Friday. Brexit is likely to be a prominent driver of the pound as markets approach the June summit. Any central bank comments could also direct sterling.

Europe | EUR

EUR - Politics in focus as Italy and Spain look towards fresh elections

Last week

- Political uncertainty raised its head again last week, and now Spanish Prime Minister Mariano Rajoy faces a vote of no confidence this week. In Italy, the Five Star Movement and League coalition was rejected, catalysing the need for another election which could see the two parties join forces.

- Eurozone consumer confidence slipped in May, falling from 0.3 to 0.2. German consumer confidence also noted a downturn from 10.8 to 10.7.

Week ahead

The week ahead could be filled with euro fluctuations as developments in Italy and Spain unfold. The fresh Italian election may take place any time between autumn and early next year, which means the euro may have some ongoing pressures. Meanwhile, with Spanish Prime Minister Mariano Rajoy facing a vote of no confidence on Friday, there could be elevated concerns about the state of politics in some of the Eurozone's largest economies.

Wednesday will see the German employment change and unemployment rate numbers come to light followed by the OECD economic forecasts and German consumer price index. Thursday will continue with the Eurozone inflation reading which could be a significant influence on the euro.