GBP/USD pushes past 1.27 on rising market optimism

The pound trended higher again on Tuesday, climbing to a four-month high against the US dollar in response to an upbeat market sentiment.

Sterling is struggling to build on these gains this morning, however, with GBP/EUR subdued at €1.1023 and GBP/USD muted at $1.2715. GBP/CAD is flat at C$1.7099, while GBP/AUD and GBP/NZD have slipped to AU$1.7785 and NZ$1.9090, respectively.

Coming up, will we see coronavirus optimism continue to bolster market sentiment today?

What’s been happening?

The pound marched higher yesterday as the UK currency’s growing sensitivity to market sentiment saw it buoyed by a more optimistic market mood.

The upswing in Sterling came in spite of concerns over the rising tensions between Downing Street and Beijing, with GBP investors concerned that the new rift could negatively impact the UK’s post-Brexit trade opportunities.

While much of Tuesday’s optimism was driven by the announcement that EU leaders had finally reached an agreement in regard to the EU’s coronavirus recovery fund, the news failed to support the euro itself.

This was attributed to some profit taking amongst EUR investors, who having driven the single currency higher in recent weeks in hopes of a deal, now began to unwind their positions in the euro.

The US dollar, meanwhile, found itself on the defensive again on Tuesday, with the safe-haven ‘Greenback’ continuing to fall out of favour as news of the EU fund and optimism for a coronavirus vaccine bolstered market sentiment

What’s coming up?

Looking ahead, we expect hopes for a coronavirus vaccine to remain a key catalyst of currency movement today.

As a result, the US dollar may remain on the back foot today, although any losses may be tempered by the latest US housing figures as economists forecast a sharp rebound in existing home sales last month.

A speech from the European Central Bank’s (ECB) Luis de Guindos may provide fresh impetus for the euro today. EUR investors will be looking for the ECB’s take on the coronavirus fund passed by EU leaders and how it may impact the bank’s future fiscal policy.

Finally, in the absence of any notable UK economic data, the pound may struggle for direction today, with lingering Brexit uncertainty potentially offsetting any gains driven by market optimism.