trong inflation data in the US seemed to contradict him the following day, but markets looked passed it and made the US Dollar the worst performer among G10 currencies. However, the action last week was once again in emerging market currencies. While these were generally up again, led by a sharp rally in the Brazilian Real, the Turkish Lira crashed on news last weekend that Erdogan had replaced the head of the central bank there.

This week will be unusually quiet in terms of economic releases. While we are always exposed to headline risk on the US-China trade conflict or Brexit, we expect to see somewhat sleepy summer trading in currency markets.

GBP

Mixed economic data out of the UK has still not drawn a clear picture of the impact of Brexit uncertainty on UK businesses and consumers. The absence of any collapse in investment seems to indicate that UK companies are for now taking a sanguine view of the likelihood of a no-deal Brexit, though odds markets place the chance of this happening at roughly one in three.

EUR

We witnessed an upside surprise in industrial production figures for May. This data is obviously somewhat dated by now, but it indicates that the risk of recession in the Eurozone is very low. European consumers continue to power ahead thanks to steady job creation and decent real wage gains. The Euro is not reacting much so far to the stronger data, as fears of a reprise of monetary stimuli from the ECB linger on. Therefore, any sharp rally in the Euro will have to be driven by less dovish communications from ECB officials – however, the chances of it happening anytime soon look thin.

USD

An interesting dichotomy is developing in US economic and policy news. Federal Reserve dovishness is undeniable, and Chair Powell made clear his disposition to cut rates beginning in July. Meanwhile, core inflation (which strips volatile food and energy components) has been at or above the 2% Fed target for 18 consecutive months now. June numbers were stronger than expected. There is no sign of a slowdown in job creation and secondary labor indices show an increasingly assertive and confident labor force. We maintain our view that the room for cuts in the US is smaller than interest rate markets are pricing in.