🇬🇧 Sterling Holds Near Key Resistance as Bailey Speeches Offer Potential Catalyst
Last week, the pound saw limited movement across its major currency pairings, with GBP/EUR remaining around the 1.15 level. Sterling’s underlying trend against the euro remains constructive, but repeated failures to break above 1.16 suggest the pair is not yet ready for a sustained move higher.
A lack of clear positive catalysts, potential month-end flows, and renewed setbacks linked to Middle East tensions all contributed to the pair’s pullback, with the 1.16 resistance ceiling continuing to cap upside momentum. Meanwhile, GBP/USD, or Cable, remains around 1.34 as it looks to challenge the 1.35 resistance level, which it briefly flirted with last week.
Beyond global volatility drivers such as the conflict in the Middle East, the domestic calendar could also prove influential. Bank of England Governor Andrew Bailey is scheduled to make three appearances this week, which may provide updated insight into the Bank’s thinking on inflation and the future path of interest rates. These remarks could potentially deliver the catalyst needed to push sterling above key resistance levels and trigger a breakout. As a result, traders will be watching closely.
🇺🇸 Markets Weigh Geopolitical Risks and Upcoming U.S. Data
Geopolitical tensions between the U.S. and the Middle East remain elevated after it was confirmed that the U.S. struck Iranian military sites over the weekend. Tehran responded by targeting an American base, marking the third known escalation in a week around the Strait of Hormuz.
The latest exchange follows stalled negotiations over a deal to end the months-long conflict, with U.S. media reporting that President Trump had requested changes to the proposed terms. This has left markets in a position of uncertainty, with investors likely to remain cautious as they assess the risk of further escalation.
On the domestic front, key U.S. manufacturing data is due for release today, followed by employment and labour market figures later this week, including Friday’s nonfarm payrolls report. Together, these data releases and ongoing geopolitical tensions could provide further support for the U.S. dollar this week.
🇪🇺 Euro Holds Around 1.16 as Markets Watch Geopolitics and Eurozone Data
In the eurozone, the euro saw limited movement against the U.S. dollar last week and remains firmly around the 1.16 level.
One potential catalyst for euro gains would be a de-escalation of tensions in the Middle East, particularly given that the euro’s strongest session last week coincided with a 7% fall in crude oil prices. However, the single currency has struggled to carry that momentum into this week.
From a technical perspective, the recent selloff that characterised EUR/USD trading through the middle of May appears to have eased. This suggests a tactical rebound may be possible, potentially supported by month-end flows.
That said, the broader eurozone outlook is less constructive than it was at the start of the year, when EUR/USD was trending toward 1.20. Markets will remain closely focused on geopolitical developments, but from a domestic eurozone perspective, Thursday’s retail sales data will be key in assessing the bloc’s economic health. European Central Bank President Christine Lagarde’s speech later in the week will also be watched closely for any signals on the policy outlook.
🇨🇦 Currency In Focus – Canadian dollar
This week’s currency in focus is the Canadian dollar, as its vulnerable position continues to be exacerbated by trade uncertainty.
Recent warnings from senior U.S. trade officials have highlighted the specific challenges facing Canada–U.S. negotiations. Key U.S. trade representatives have suggested that Canada is in a “different spot” to Mexico when it comes to tariffs, noting that Canada and China are the only two countries to have retaliated against U.S. tariff measures. One official also remarked that it is “hard to see where that ends”, underlining the uncertainty surrounding the current trade backdrop.
Traditionally, when markets believe Canada has stable access to the U.S. market, the Canadian dollar tends to benefit. This is because investors can price in stronger exports, firmer business investment, and reduced risks to growth.
However, when tariff threats or uncertainty around the USMCA/CUSMA framework rise, the Canadian dollar often comes under pressure, as Canada’s growth outlook becomes more exposed.
The Bank of Canada has publicly acknowledged these challenges, with trade uncertainty weighing on business confidence and complicating the domestic economic outlook. As Canada continues to navigate a more unpredictable U.S. trade environment under the Trump administration, the Canadian dollar is likely to remain sensitive to further developments in Canada–U.S. negotiations.
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