Pound (GBP) strengthens as gilt yields pull back
The increasingly risk-sensitive pound (GBP) climbed yesterday, as an upbeat market mood helped the UK currency advance against its safer peers.
Sterling also drew support from easing UK borrowing costs, as gilt yields fell back from Monday’s two-week highs.
With UK economic data thin on the ground today, GBP movement may remain tied to bond market shifts and broader risk appetite. If gilt yields continue to retreat, the pound could find further support.
Euro (EUR) upside capped despite stronger German data
The euro (EUR) ticked higher against its weaker rivals yesterday, supported by upbeat German economic data and the single currency’s strong negative correlation with a softer US dollar (USD).
However, EUR’s gains were restrained by the risk-on tone in markets, which limited demand for the safer common currency.
Looking ahead, the euro may trade quietly today amid a lack of fresh data, as EUR investors await the European Central Bank’s (ECB) interest rate decision on Thursday.
US dollar (USD) weakens as risk appetite improves
The safe-haven US dollar slipped yesterday as market risk appetite continued to recover amid developments in the Middle East.
After Iran and Israel agreed to avoid further strikes following Monday’s escalation, and US President Donald Trump suggested that a peace deal was close, cautious optimism spread through markets.
Turning to today, USD investors are likely to focus on the latest US consumer price index. If inflation accelerated in May, the ‘greenback’ could regain some ground, should the data strengthen expectations for a Federal Reserve interest rate hike.
Canadian dollar (CAD) falls as oil prices soften
The crude-linked Canadian dollar (CAD) weakened on Tuesday, as a pullback in oil prices weighed on the currency.
Attention now turns to the Bank of Canada’s (BoC) interest rate decision today. While policymakers are expected to leave interest rates unchanged, CAD could rise if the BoC signals that rate hikes may be needed in the months ahead.
Australian dollar (AUD) slips amid renewed US-Iran tensions
The Australian dollar (AUD) weakened overnight after the US launched fresh strikes on Iran, following reports that a US military helicopter had been downed near the Strait of Hormuz.
New Zealand dollar (NZD) subdued as sentiment sours
The New Zealand dollar (NZD) remained muted overnight, as renewed geopolitical anxiety dented market risk appetite.
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