lsewhere, G10 currencies barely moved. The Euro was unable to rally in spite of strong PMI index data; a sign that the recent rise may be somewhat stretched as trader positioning has shifted sharply to Euro longs.

The most volatile emerging market currencies is the South African Rand. The rumours that the African National Congress may dump President Zuma were received euphorically by markets, but the Rand gave up most of its gains on Monday after it emerged that Zuma had survived the challenge.

Major currencies in detail

GBP

The dramatic narrowing of the Tory’s lead in the polls, from nearly 20% to approximately 8-9%, weighed on Sterling and caused it to underperform every other G10 currency. A marked slowdown in consumption in the first three months of 2017 did not help matters. However, the still-sizable Conservative advantage at about 10 points would be enough to guarantee a stable majority, and the Pound steadied to begin the new week.

The general election on June 8th looms large for Sterling. It is difficult to see any other data or events distracting markets form their focus on polls until then. Nevertheless, steady to strong PMI business activity numbers next week may well provide some temporary support for the Pound.

EUR

The Euro´s inability to rally further in spite of solid PMI business activity data last week was perhaps an early sign that the current rally may be nearing exhaustion. ECB policy makers are unlikely to deliver the hawkish message that markets seem to have priced in when they next meet on June 8th.

Before the June 8th date, however, we have a critical data point coming out on Thursday. Markets are expecting a significant pullback in inflation from the sharp rise seen over the last two months. All eyes will be on the core inflation number, which has risen 0.3% since February. Economists have pointed out that calendar quirks on the airfare and holiday package subcomponents may have had a lot to do with that. If so, expect a significant drop in the May numbers and possibly Euro weakness as a result.

USD

The relative absence of negative news regarding the Trump Administration was enough to steady the dollar against its major peers last week. The Federal Reserve May meeting minutes were relatively uneventful, confirming the Fed’s intention to hike next month, but reflecting a lively debate within FOMC members as to the likely level of long-term rates.

Next week we turn to the all-important jobs number on Friday, the last critical piece of data before the June meeting. The June hike appears to be a near-certainty, and it would take a shocking negative surprise in this jobs report to throw this in doubt. Such surprises are quite rare and we remain confident on our forecast of an increase in rates at the next Federal Reserve meeting.