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Pound sterling dropped one per cent last week, but is primed for steadier trade in the coming days.
Politics will remain the foremost source of concern for the pound-to-euro conversion as the Labour Party cracks on with its intercine struggles that could eventually see Prime Minister Keir Starmer replaced by Andy Burnham, the current mayor of Greater Manchester.
However, from where we sit this Monday, we get the sense the pound and bond markets have taken most of these developments on board, and traders will this week be looking to ingest more traditional fare: labour market and inflation data, PMIs and retail sales figures.
"Although recent political developments have had a limited FX impact, Sterling has been supported by stronger global risk appetite, firm cross-border M&A inflows, rate differentials, and relatively lower energy dependence vs the Euro area," says a note from Goldman Sachs.
From a technical perspective, the GBP/EUR outlook has deteriorated somewhat after last week's 0.90% fall. The exchange rate starts the new week at 1.1465 which is where some interim technical support is located. The daily chart shows it has tended to find buying interest on weakness around here for much of 2026.
Further weakness could see the pair reach lower to test 1.1430, which is the next horizontal support level, which forms the approximate lower end of a range that spans all the way back to last July.
In short, there are some technical support areas that could come into play and support this pair, which has tended to respect a broader sideways range since last year.
Expect the pound to remain sensitive to politics this week. Last week the odds of Andy Burnham becoming the next UK prime minister spiked to 45% when he declared he intended to stand in the Makerfield by-election.
The pound took a leg lower in response. We said on Friday that the odds of sterling falling much further were insulated by the facat Burnham would struggle to win the seat.
However, weekend news that right-wing party Restore Britain will be fielding a candidate in the election will split the right-wing vote and lower the odds of Reform winning the seat.
If we see Burnham's odds of winning the seat rise further, the pound could come under pressure again.
"Recently there have been FX moves; the weakness despite widening rate differentials suggests a narrow political risk premium is being priced in," says Goldman Sachs.
Turning to the calendar, Tuesday sees the release of labour market and wage data, which traditionally helps inform the UK inflation debate. The rule of thumb is that above-consensus wages tend to boost the pound.
However, the UK labour market is steadily deteriorating, and any below-consensus wage or employment headlines could weigh.
Wednesday's inflation data are arguably more important as they will help determine whether the next move at the Bank of England is to raise interest rates.
CPI is expected to slide back to 3.0% y/y due to seasonal effects, before it rises towards 4.0% in later months.
That should mean the Bank of England considers raising interest rates again. For now, that dynamic is proving supportive of the pound.
Thursday sees the release of PMI data for May, which will give a first snapshot of how the economy did this month, and a consensus-beating outturn can set the pound up for a firmer end to the week.
Last week's above-consensus GDP reading of 0.6% q/q in Q1 was a timely reminder that it's quite easy to under-estimate the UK economy. It's why we would be open to further upside data surprises in the coming week.
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