French parliamentary election results more worrying for the eurozone

GBP

Last week was a turbulent one for the markets with general trends and key events causing investors to weigh up their positions ahead of interest rate decisions.

Both the US and UK hiked interest rates by 0.75 and 0.25 basis points respectively. With the Federal Reserve and the Bank of England signalling further rate hikes to combat rising inflation, we can expect another week of volatility.

The highlight for Sterling this week will be inflation data released on Wednesday. CPI is set to rise to 9.1% from 9% in the month of May. The BoE confirmed last week that they will be closely watching upcoming data and will base their monetary policy on such releases.

In addition to CPI, Friday will also see the latest retail sales release. Markets expect a reading of 4.7% year-on-year, up from a previous -6.1%. However, a contraction of -0.9% month-on-month is projected, down from 1.4%. Should the latter come in, it would indicate how consumers are responding to rising costs.

EUR

A couple of months ago, markets welcomed the outcome of the French presidential elections that saw President Macron being re-elected for a second term. Since yesterday it is confirmed Macron has lost parliamentary majority, which would have made his second mandate easier to manage. However, the news doesn’t seem to have bothered the euro, and being more of a longer-term risk to the eurozone outlook, it is not too surprising. EUR/USD has once again found some anchor around the 1.0500 level, something we expect to happen over the summer months despite volatility looking likely to remain elevated.

USD

Across the pond, the key event to watch out for this week will be Jerome Powell testifying before congress on Thursday. Following from last week’s Fed meeting, we expect some volatility for the dollar this week.

Key announcements

13:00 – EUR – ECB President Lagarde’s speech