The winner of the week in currency markets was undoubtedly the Brazilian real, which posted significant gains against every other major currency after centrist parties decided to pool their support behind a single Presidential candidate.

Major currencies in detail

GBP

The relatively good news from the UK labour market last week was overshadowed by lower than expected inflation numbers. We continue to expect another hike in interest rates from the Bank of England this summer, but it is likely that the vote will be very close.

Even harder to predict is the newsflow from Brexit. The sense of disarray on the Government’s side increased last week, and the possibility of a postponement in next year’s Article 50 deadline is starting to make the rounds. We think that the recent punishment of Sterling is excessive, and that the mere absence of negative news will be enough to keep the Pound well supported.

EUR

After a very quiet week in the Eurozone, the focus this week will be on the ECB’s July meeting. No change in policy or forward guidance is expected, and we look to the press conference, after the meeting, to provide more clarity on the Council’s view on trade risks and the failure of core inflation to convincingly trend higher. Also of key interest will be the indices PMI of business activity, for July, published on Tuesday.

USD

Political uncertainty is starting to weigh on the US Dollar. It will be key to see whether Trump follows up on his off the cuff complaints about rate hikes and their effect on the US Dollar, although GDP growth for the second quarter should come out very strong. This, together with the fiscal stimulus still in the pipeline, will continue to pressure the Fed to keep increasing rates at a gradual pace.