Pound (GBP) supported by upbeat mood
The pound (GBP) trended broadly higher through yesterday’s trading session, with Sterling underpinned by improving market sentiment.
The upside in GBP exchange rates was also supported by expectations the Bank of England (BoE) will diverge from the European Central Bank (ECB) and Federal Reserve by keeping interest rates on hold this month.
In the absence of any notable UK data, the direction of the pound may remain dependent on market sentiment today as GBP investors await the BoE’s rate decision on Thursday.
Euro (EUR) dented by risk-on mood
The euro (EUR) was pulled in two different directions on Monday. Acting as a headwind for the single currency was the prevailing risk-on mood.
However, this was at least partially countered by comments from ECB policymakers indicating the bank is in no rush to continue cutting interest rates.
Coming up, Germany will publish its latest ZEW economic sentiment index later this morning. Economists forecast that morale will continue to deteriorate this month, likely placing pressure on the euro.
US dollar (USD) pressured by Fed rate cut bets
The US dollar (USD) faced broad-based weakness at the start of this week, amid a hardening of bets for a 50 basis point interest rate cut from the Federal Reserve on Wednesday.
According to CME’s FedWatch tool, the odds have now tipped in favour of a more aggressive cut, with the probability of a 50bps cut climbing to 65%, from just 30% just a week ago.
Turning to today’s session, the US dollar may come under additional pressure as the latest US retail sales figures are expected to report a notable slowing of sales growth last month.
Canadian dollar (CAD) softens despite rising oil prices
The Canadian dollar (CAD) was pressured by its positive correlation with the US dollar on Monday, which left the commodity-sentiment ‘loonie’ unable to benefit from rising oil prices.
Looking ahead, CAD exchange rates may weaken today as Canada’s latest consumer price index is expected to report domestic inflation cooled last month.
Australian dollar (AUD) muted amid Chinese economic gloom
The Australian dollar (AUD) traded in a narrow range overnight on Monday, in response to growing concerns over China’s economic outlook, after Goldman Sachs slashed its Chinese growth forecasts.
New Zealand dollar (NZD) undermined by China concerns
The New Zealand dollar (NZD) also struggled in overnight trade as a result of China’s darkening economic outlook.