Political anxiety following the European elections hammered the euro last week, with significant gains for far-right parties and a snap election in France rattling EUR investors.
This week, the UK's latest consumer price index could drive most movement in the pound. Will cooling inflation see Sterling stumble?
Pound
The pound fell against many of its peers last week as rising UK unemployment and stalling economic growth in April raised concerns that the country's economic recovery may be losing steam.
Looking ahead, the Bank of England (BoE) may refrain from offering any concrete forward guidance at its upcoming policy decision due to the looming UK election. As a result, the British CPI may be the driving factor for GBP. With inflation set to cool to the BoE's 2% target, Sterling could slump.
Euro
The euro plunged last week, hitting a 22-month low against the pound, following strong gains for far-right parties in the European elections. French President Emmanuel Macron called a snap election following the results, raising fears that his party would control of parliament and therefore be unable to enact much-needed economic reforms.
French political jitters could continue to pressure the euro this week. However, upbeat PMI data on Friday could help the common currency end the week on a positive note, if it shows expanding business activity as expected.
US dollar
The US dollar started strong last week. Cooling US inflation then dented the currency midweek, but the 'greenback' regained its strength thanks to hawkish signals from the Federal Reserve at its interest rate decision and widespread risk aversion.
This week, the US retail sales report for May is forecast to show a recovery, potentially boosting USD. If the market mood remains risk-off, this could also support USD.
Australian dollar
Despite starting the week at monthly lows against many peers, the Australian dollar managed to rally last week. A decline in Australian unemployment helped to boost the currency's appeal.
Turning to this week's session, the Reserve Bank of Australia's (RBA) interest rate decision is in the spotlight. While the RBA is expected to leave rates unchanged, AUD could strengthen if the bank leaves the door ajar for another rate hike in the future.
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