GBP/USD rallies above $1.37 as market mood improves

The pound rallied on Monday, lifted by an upbeat market mood and pullback in the US dollar.

Trade in Sterling is mixed so far this morning, with GBP/EUR stable at €1.1691 and GBP/USD flat at $1.3721. GBP/CAD is muted at CA$1.7337, while GBP/AUD and GBP/NZD slump to AU$1.8982 and NZ$1.9791 respectively.

Looking ahead, will a further improvement in market sentiment send the US dollar lower today?
 

What’s been happening?

The pound struck higher against both the euro and US dollar at the start of this week’s session, supported by an improving market mood.

However, these gains were capped in light of the UK’s latest PMI releases, as August preliminary figures revealed activity in the service sector slowed to a five-month amid staff shortages and supply chain issues.

The euro, meanwhile, was left muted on Monday, following a report from Germany’s central bank, the Bundesbank, in which it warned that German economic growth is likely to miss its initial forecasts this year due to the spread of the Delta variant of the coronavirus.

At the same time, the US dollar, trended lower yesterday as demand for the safe-haven currency was dented by an improving market mood.

This came as investors began to revise their Federal Reserve tapering expectations, following comments made by Fed policymaker Robert Kaplan late last week, in which he suggested he may need to ‘adjust’ his views on winding down the Fed’s stimulus in light of the rise of US coronavirus cases.
 

What’s coming up?

Kicking off today’s session was the publication of Germany’s latest GDP release.

The finalised reading for the second quarter came in slightly higher than initially estimated, and could lend some support to the euro today.

In the absence of any notable UK data releases, GBP investors will probably look to domestic coronavirus developments for fresh impetus today, potentially leading to some pressure on the pound if new cases continue to climb.

US data releases are also pretty thin on the ground today, and as such any movement in the US dollar is likely to be tied to market sentiment. Will a further improvement in market sentiment dampen the appeal of the US dollar?