Week Ahead: USD Comeback, EUR Test, GBP Struggle

Credit Agricole CIB FX Strategy Research notes that next week will likely highlight that the relative fundamentals in the US and Eurozone continue to support policy divergence between the Fed and the ECB.

"In particular, we expect that US labour market data will confirm that the economy is at full employment and continues to generate wage inflation. In the Eurozone, we expect HICP inflation to slow down, heralding a period of relatively subdued price pressure over the summer months.

In turn, this could usher in a period of EUR/USD underperformance in the coming days," CACIB argues. 

Elsewhere, CACIB expects GBP to continue to struggle in the run up to the 8 June general elections.

Finally CACIB expects relative underperformance of G10 commodity block currencies on next week's release of global PMIs which should highlight the increasingly divergent trends in the global recovery with the cyclical upswing in Europe gathering momentum while the recovery in China is losing more steam.

Source: Credit Agricole CIB Research