The GBP to EUR exchange rate's upward momentum so far this year has faced significant resistance, hindering its progress in the latter half of May. However, the consolidation around the 1.15 level could see a breakthrough in either direction following the release of European inflation figures for April on Thursday.

Throughout last week, GBP remained relatively stable against the Euro.  GBP's advance faltered shortly after UK inflation figures for April were released, showing a smaller decline than expected.

The unexpected rise in UK Consumer Price Index (CPI) contributed to a sell-off in the bond market, which negatively impacted risk sentiment and weighed on Sterling. Michael Cahill, a G10 FX strategist at Goldman Sachs, noted that the substantial increase in UK CPI fuelled the selloff in government bonds, affecting GBP.

Derivative markets quickly adjusted to reflect a high probability of the BoE raising the Bank Rate to 5.5%, following the data released the previous week. The decline in April's inflation was attributed to earlier drops in energy prices. This was further supported by the core inflation rate, which rose from 6.2% to 6.8% as prices of domestically produced goods and services increased in various categories after the start of the financial year. Such price increases are precisely what the BoE has been attempting to prevent.

Rate expectations have steadily increased throughout the year, driven by official figures and private sector indicators suggesting greater resilience in the UK economy than initially anticipated. The BoE upgraded its forecasts this month, now projecting modest growth for 2023.

GBP/EUR is primarily focused on Europe's inflation figures this week, as UK economic data remains relatively limited. The likely outcome and market response are uncertain, especially if price pressures on the continent remain persistent.

Economists surveyed expect Europe's inflation rate to fall from 7% to 6.3% for April, with the core inflation rate edging lower from 5.6% to 5.5%.

The timeliness of federal policymakers reaching an agreement on the debt ceiling could have significant consequences for the United States' creditworthiness. Even if the worst-case scenario of a debt default is prevented, failure to meet other payment obligations could still damage the country's reputation.

According to Bloomberg, credit rating agencies maintain an optimistic outlook that a deal will be reached. President Joe Biden and Congressional Republicans have been engaged in ongoing negotiations to avert a US default, as the US borrowing limit needs to be raised before June 1, the date when Secretary Janet Yellen has warned that the government will exhaust its funds to fulfill all obligations.

Despite partisan tensions, both sides have expressed a positive sentiment regarding the negotiations, suggesting that an agreement might be within reach. Consequently, Moody's Investors Service, Fitch Ratings, and S&P Global Ratings, which downgraded the US in the aftermath of the 2011 debt ceiling standoff, are all maintaining a stable outlook.

Nevertheless, time is running out, and the possibility of a default still looms. Previously in March, Republicans proposed "prioritizing debt" as a means to avoid the crisis, which involves paying off certain obligations before others. For example, the government could continue making payments on bonds while postponing payments to certain contractors.

If this were to occur, Fitch has indicated that the US would be downgraded from its AAA status. Yellen has also criticized this strategy, referring to it as a "default by another name."

Meanwhile, Moody's has stated that it might downgrade the government's credit to Aa1 if there is a delay in interest payments on bonds, a situation that could arise if the Treasury runs out of funds.

The creditworthiness of the United States is central to the risk-free reputation of its Treasury market, and even the mere threat of a downgrade could lead investors to retreat from debt linked to the world's largest economy.

Furthermore, prolonged delays in resolving the debt ceiling issue could have more than just an impact on US credit. According to Goldman Sachs, even if a default is averted, market liquidity could be depleted as efforts are made to replenish the Treasury Department's cash balance. As of last week, the Treasury General Account held $60.6 billion, a significant decrease from the previous week's $114 billion.

Headlines continue to be dominated by ongoing talks concerning the US debt ceiling, posing a genuine concern for global markets. This situation could potentially lead to an unprecedented US government default. While some progress has been made last week and a resolution still appears to be the most probable outcome, the uncertainty surrounding the issue is negatively impacting overall sentiment.

In the UK, there are indications of a slowdown in the job market, as the number of payrolled employees unexpectedly dropped. Additionally, the unemployment rate saw a slight increase to 3.9%, while average earnings experienced a growth of 5.8%.

Ahead of their next meeting, the Bank of England will receive further data on jobs and inflation. Currently, the market is pricing in a 75% likelihood of an additional interest rate hike.

The committee hopes for a significant decrease in inflation data this week to alleviate some of the pressure, given that recent economic indicators have been sending mixed signals.

It is likely that the US Central Bank has reached the conclusion of its historic cycle of interest rate hikes. Market expectations include aggressive rate cuts in the latter half of this year due to declining inflation, although the overall outlook remains highly uncertain.

On the other hand, the European Central Bank maintains a notably hawkish stance and is expected to continue raising rates in the coming months. Their rate hikes started later and from a lower base compared to other central banks.

In the realm of currency exchanges, the uncertainty surrounding the US debt ceiling is contributing to a risk-averse environment and bolstering the dollar. Consequently, GBP/USD is trading near its lowest point of the month, around 1.2400, while GBP/EUR remains close to its highest level of the year, hovering around 1.1500.

The UAE Ministry of Finance announced on December 9th 2022 that the United Arab Emirates (UAE) will implement a federal corporate tax on business profits for the first time. This decision marks a significant departure for the country, which has attracted global businesses as a tax-free commerce hub. Starting from June 1, 2023, businesses will be subject to a 9% statutory tax rate on taxable income exceeding 375,000 UAE dirhams ($102,000). The tax rate will be zero for taxable income up to that amount to support small businesses and startups, making the UAE corporate tax regime highly competitive worldwide.

Individuals, on the other hand, will not be taxed on their employment income, real estate, equity investments, or other personal income unrelated to UAE trade or business. The tax will not apply to foreign investors who do not conduct business in the country.

The tax will be levied on the "adjusted accounting net profit" of businesses. Free zone businesses, which number in the thousands in the UAE, can continue to benefit from corporate tax incentives if they meet the necessary requirements. Free zone companies have historically enjoyed zero taxes, full foreign ownership, and other advantages.

The UAE's corporate tax regime has been designed to incorporate global best practices and minimize the compliance burden on businesses. It will apply to all businesses and commercial activities, with few exceptions and adjustments. However, the extraction of natural resources will still be subject to Emirate-level corporate taxation.

While the announcement created ripples when it was made, many business experts in the UAE were not surprised. The discussion around corporate tax in the UAE has been ongoing for several years, and neighbouring Gulf Cooperation Council (GCC) countries such as Saudi Arabia and Qatar already have corporate taxes in place.

As the UAE seeks to diversify its economy away from hydrocarbon revenue, the introduction of corporate taxes is seen as a means to establish income sources independent of corporate dividends and investment income, which can be volatile.

The introduction of corporate taxes gives UAE companies approximately eighteen months to prepare, but opinions are divided on whether this move will impact the country's attractiveness to businesses.

Some experts, like Mark Hemmings from Dubai-based firm Kent, view the decision as practical and sensible, ensuring compliance with anticipated new international tax rules while maintaining the UAE's appeal as a business location.

However, concerns have been raised about the relatively low threshold for taxation, which could negatively affect smaller enterprises with high setup and business renewal costs. Rupert Tait, co-founder of UAE-based start-up Procurified, believes that the corporate tax may lead small and medium-sized enterprises (SMEs) to reconsider their long-term plans due to upfront fees and subsequent taxes once they become profitable.

Despite potential challenges for SMEs, the proposed tax rate in the UAE remains low compared to other low-tax jurisdictions worldwide. Countries like Montenegro and Gibraltar have tax rates of 9% and 10% respectively, while Ireland and Lichtenstein offer a 12.5% corporate tax rate. Hong Kong, Singapore, and San Marino have tax rates ranging from 8.5% to 17%. It remains to be seen what benefits and services will be provided in exchange for the new taxes.

In summary, the introduction of corporate taxes brings the UAE in line with other competitive economies and the tax rate, while new for the private sector in the country, remains lower than in jurisdictions like Singapore and Hong Kong.