The most important event that may affect the movements of major currencies this week will be the Federal Reserve monetary policy meeting, as policymakers will set interest rates. In addition, market participants will follow monetary policy meetings of the Bank of England and the Bank of Japan.
US dollar to receive signals from the Fed
The Federal Reserve will meet this week to determine interest rates and monetary policy path in line with the latest developments in the US economy, where the central bank will release its latest forecasts for growth, inflation and unemployment.
FOMC members are expected to vote in favor of holding the borrowing cost, taking in mind that policymakers will be under immense pressure to cut interest rates.
Escalating US-China trade tensions, President Donald Trump's criticisms of the dollar’s exchange rate and benign US inflation are enough reasons to prompt the Fed to slash interest rates.
However, the Fed is expected to keep interest rates and start the first rate cut in July, as policymakers may wait beyond the G20 summit in Japan on June 28-29, where Trump would meet with Chinese President Xi Jinping.
In the event of any surprises or preparations by the Fed to reduce interest rates in the coming period, the dollar may be adversely affected.
As for economic reports, perhaps the most significant data this week will be the initial purchasing managers for the manufacturing and services sectors for June, as the report should give an initial impression of economic activities in the world's largest economy in the second quarter of 2019.
Forecasts indicate an improvement in private sector economic activities to 51.4 in June from 50.9 in May.
BOE, reports to weigh on pound movements
The pound sterling fell against the U.S. dollar last week as Brexit worries continued alongside the leadership struggle inside the British Conservative Party.
The British pound movements this week may depend on the latest Brexit developments, but the Bank of England will vote on interest rates and issue the minutes of the monetary policy meeting, which include the results of the BOE's vote on interest rates and other monetary policy measures.
The BOE is expected to keep its current interest rates on hold, but markets will wait for hints about the future of the interest rates in the midst of the current political turmoil.
As for the most important reports this week, the U.K. will inflation data for May, especially the Consumer Price Index, and the Retail Sales that directly reflects household spending.
Euro traders to focus on PMIs
The euro will undergo serious tests this week, with the release of important data from the eurozone, as well as minutes of the European Central Bank’s latest monetary policy meeting.
Investors will be heavily focused on the flash Composite PMI for the euro area, which includes both manufacturing and services, where it may show an expansion in June to 52.0 from 51.8 in May.
If there is an improvement in the performance of the two main sectors in the eurozone, this may indicate progress in the rate of growth in the second quarter. So if this happens, it could give a strong boost to the euro.
Analysts also expect the eurozone final CPI for the year ended May to confirm a decline to 1.2 percent, compared to the April’s final reading of 1.7 percent.
Last but not least, the minutes of the ECB's monetary policy meeting will give an in-depth look at the economic conditions that influenced the decision to set interest rates.
Commodities face harsh test
Gold managed to rebound last week, recording its fourth consecutive weekly gain, taking advantage of heightened political concerns in the Middle East and weak economic data from both China and the United States.
Gold prices jumped to a 14-month high last week, pointing out that if the pair holds above $1350 an ounce this week it could support further gains.
This week, gold is likely to get its cues from on the Federal Reserve's interest rate outlook and recent developments in the Middle East.
As for oil, prices fell last week as both the International Energy Agency and the Organization of Petroleum Exporting Countries (OPEC) cut their expectations for global oil demand for 2019 due to the negative impact of the trade disputes.
The rise in US crude inventories by 2.2 million barrels in the week ended June 7 also helped put fuel prices under more pressure.
US crude stockpiles may witness another 4.4-million-barrel rise in the week through June 14, according to the EIA government report due on Wednesday.
It should be noted that in the case of increasing geopolitical tensions
in the Middle East, oil prices may find some support.