The key event this week will be the widely anticipated ECB policy rate decision on Thursday.

GBP fell from 21-month highs against the EUR following Friday’s release of higher-than-expected Eurozone inflation data, disrupting a bullish technical setup and raising the potential for a deeper pullback to £/€ 1.17 or lower at interbank.

The recent strength of GBP has been driven by diminishing expectations for a June rate cut by the Bank of England (BoE). Markets now do not fully anticipate a rate cut by August. In contrast, the European Central Bank (ECB) is expected to cut interest rates this week, creating a clear divergence in monetary policy between the UK and Eurozone that supports GBP gains. Since markets already anticipate an ECB rate cut on Thursday, the actual decision won't be surprising; instead, market movements will be influenced by guidance on future rate cuts.

In addition to central bank actions, economic data will also be in focus this week. China will release Caixin PMI numbers on Monday, Australia will report March-quarter GDP on Wednesday, and the US will build up to Friday’s non-farm payrolls (NFP) report.

Last month, the NFP report missed forecasts for the first time since October, triggering a USD sell-off and leading to the greenback's first monthly decline in 2024.