[vc_row][vc_column][vc_column_text]The US rocketed higher last week, as a surprisingly hawkish shift by the Federal Reserve triggered a sharp spike in demand for the ‘greenback’.

At the same time, the pound fluctuated though last week’s session as a result of some high impact UK data releases and the delaying of the final lifting of the UK’s coronavirus restrictions.

So far this week, we have seen the pound recoup some of its losses from last week, with GBP/EUR nearing €1.17, while GBP/USD has rebounded to US$1.39.

Looking ahead, a key focus this week will be on the Bank of England’s (BoE) latest policy meeting. Will a more hawkish outlook from the bank send Sterling higher?

Pound fluctuates following reopening delay

The pound got off to a poor start last week, as GBP investors were dismayed by the government’s confirmation that England’s reopening date would be delayed by four weeks from 21 June to 19 July.

Disappointment over the announcement overshadowed the publication of some upbeat jobs figures, which revealed a surprise drop in unemployment and a sharp jump in wage growth in April.

Sterling then began to mount a recovery in the middle of the week, with the release of the UK’s consumer price index. May’s CPI figures reported domestic inflation rocketed up to 2.1%, putting it back within the Bank of England’s (BoE) target range and bolstering expectations the bank could start to tighten its monetary policy in the coming months.

However, the pound then fell off its best levels in the latter half of the week, after data showed a shock contraction in domestic retail sales last month.

Looking ahead, the spotlight for GBP investors will no doubt be the BoE’s latest policy meeting on Thursday. No policy changes are expected from the BoE this week, but analysts are predicting the bank will strike a more hawkish tone, which could help bolster the pound.

Also of note will be the UK’s latest PMI figures, will another month of robust growth in the UK’s private sector also lend some support to Sterling?

Euro knocked by USD strength

The euro initially strengthened last week, rising on the back of the Eurozone’s latest industrial productions figures, which beat expectations in April.

Helping to extend these gains were some robust inflation figures from Germany on Tuesday.

However, the euro then fell off a cliff in the middle of the week, with the single currency’s negative correlation with the US dollar triggering a sharp drop in EUR exchange rates as the ‘greenback’ rocketed higher.

With the EUR/USD exchange rate being propelled to a new two-month low, the euro struggled to attract support through the latter half of the week, although a slightly stronger-than-expected core CPI reading from the Eurozone on Friday helped to cap the single currency’s losses.

Turning to this week’s session, so far, we have seen the euro dented by comments from European Central Bank (ECB) President Christine Lagarde, in which she suggested that any monetary ‘tightening would be premature and would pose a risk to the ongoing economic recovery.’

However, there is the chance for EUR exchange rates to rebound on Wednesday, with the publication of the Eurozone’s latest PMI figures, which are expected to report that activity in the bloc’s service sector continued to accelerate this month.
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