GBP

After a quiet data week last week, the UK will take centre stage with plenty of first-tier data sets for release, including the latest figures on unemployment, inflation, growth and retail sales. The upcoming data could contribute to further speculation on the Bank of England's interest rate policy, which has held the gaze of financial markets for some time.

The pound continues to be rangebound market versus the euro and the US dollar, with very little movement within the range as last week drew to a close. It was supported towards the end of last week as risk appetite appeared to return. Before this, GBP had been losing ground quite rapidly due to risk aversion and a lack of data to provide support.

This week, however, the data released will give us a holistic look into the state of the UK economy. Firstly, we will be able to assess the employment market with UK average earnings, claimant count, and unemployment rate, all of which are due for release on Tuesday.

Previous data showed a slowdown in the UK labour market, which is anticipated to have continued through July, albeit at a slower pace. A reduction in permanent contracts, slowly rising redundancy numbers and a four-month consecutive climb in unemployment to 4.4% are potential signs that an economy has the capacity for an easing in monetary policy. i.e lower interest rates.

Wednesday's headline event for the pound is the CPI inflation data release, which will give us both the core and headline inflation rates for the UK. This is expected to show a slight increase in prices throughout July to 2.3% year-on-year from the previous 2% figure. Services inflation and wage inflation are particular focus areas in the data with the Bank of England rate-setters.

We will then see the updated GDP growth data released on Thursday and retail sales figures on Friday. The hope is that the pound could gather some strength if the UK showcases an economy performing better than expected, giving a favourable backdrop for further interest rate cuts.  

Current market expectation is for two further cuts to the base rate by the Bank of England between now and year-end, although Andrew Bailey, Governor of the Bank of England, has reminded markets not to expect a rapid cycle of easing.

EUR

The euro is on summer holiday, given its climb over recent weeks, which has been positive for those holding the single currency.

The euro is typically a risk-sensitive currency, meaning it can be purchased heavily as the financial market risk outlook increases. This has happened as we see increased action in equity markets and a short-term move away from safe-haven currencies. This seems to have benefitted the euro, as it moved to a three-month high against the pound and a seven-month high against the US dollar last week before slipping into a tight trading range at the end of the week.

The main data release this week will be the EU ZEW survey on Wednesday which is anticipated to show analysts weakening outlook for the EU economy. This follows recent data highlighting that both the French and German economies (EUs two largest economies) were underperforming both the UK and US, with the latest growth data reporting 0.3% and -0.1% respectively.