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6th June - Weekly FX Update

Top Currency Pairs Monday 6th June 9:00 UTC GBP/USD: 1.25737 (Last Week: 1.26297) EUR/USD: 1.07509 (Last Week: 1.07619) GBP/EUR: 1.16954 (Last Week: 1.17356)

Market News

Pound Sterling Pound Sterling has entered this week with a slight uptick, pushing above 1.25 against the US Dollar and towards 1.17 against the Euro. The Pound is against the ropes and very reliant upon external data including the European Central Bank (ECB) decision on Thursday and inflation figures from the US on Friday. News out of the UK early this morning revealed that Boris Johnson is set to face a vote of no confidence on his leadership this evening, as Sir Graham Brady, Chairman of the 1922 Committee, announced that the 54-letter threshold had been breached. Boris Johnson now needs over 50% of votes from his MPs. This has put the Pound in a better position, as although the uncertainty of a loss will be detrimental to the GBP, the markets expect a win and this should end months of speculation, allowing the government to focus on the country's political and economic priorities.

Euro The Euro is hinged on the European Central Bank (ECB) decision this Thursday and is the foremost determinant of the outlook for the GBP/EUR exchange rates. The Euro would either rise or fall according to whether the markets are satisfied with how fast the ECB is likely to lift interest rates in the Eurozone this summer. Inflation forecasts will also play an important role, where it will be interesting to see if the ECB will either support or lean against escalating market expectations. It is expected that Lagarde will reiterate guiding towards 25bp hikes in July and September, with sequential hikes based on a data-dependent approach. Hawkish rhetoric will benefit the Euro, and anything else acts as a headwind.

U.S. Dollar Last week saw some positive upside risk to the Federal Reserve (Fed) policy outlook, with US payrolls and PMI figures underlining this. While the data clearly indicated some key US economic sectors are slowing, it made apparent the risks to the inflation outlook, suggesting a continuing scope for the Fed to drive expectations for higher interest rates in the months to come. Looking ahead, Friday's US inflation data is the highlight of the week and will certainly be the main driver for GBP/USD and a significant driver for EUR/USD.

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