GBP/USD rallies amid bullish market mood

The US dollar stumbled on Friday as a prevailing risk-on mood sapped demand for the safe-haven currency.

Meanwhile, trade in the pound is a little mixed at the start of this week, with GBP/EUR stable at €1.1718 while GBP/USD dips to $1.3801. GBP/CAD has stumbled to CA$1.7512, while GBP/AUD and GBP/NZD hold steady at AU$1.8788 and NZ$1.9438 respectively.

Looking to the week ahead, will a weaker US inflation reading propel the US dollar lower?

What’s been happening?

A bullish market mood saw investors largely shun the US dollar at the end of last week, in favour of higher yielding currencies.

Helping to cap the ‘greenback’s losses however, was an uptick in US Treasury yields and speculation that the Federal Reserve is likely to announce its tapering plans at its next policy meeting.

The euro also found itself on the defensive on Friday, following a speech from European Central Bank (ECB) President Christine Lagarde, in which she reiterated the ECB’s dovish message from its recent policy statement.

Lagarde said the ECB aims to ‘continue to provide the necessary support in order to maintain favourable financing conditions’, warning that the Eurozone economy still isn’t out of the woods yet.

The pound, meanwhile, was able to maintain a positive trajectory through the end of last week’s session, as the currency rode the wave of upbeat sentiment higher.

This allowed sterling to shrug off a lacklustre domestic GDP release, which revealed the UK economy slowed to a crawl in July, despite more of the economy having opened back up.

What’s coming up?

Turning to this week’s session, the primary focus in the first half of the session is likely to be the publication of the US consumer price index.

This could see the US dollar weaken as an expected slowing of domestic inflation last month could dampen speculation over the pace at which the Federal Reserve may begin tightening its monetary policy.

For GBP investors the focus will be on the UK’s latest jobs report. Will another drop in unemployment help to buoy the pound, or will ongoing fears over a potential spike in the jobless rate once the government winds down its furlough scheme, sap Sterling sentiment?

Meanwhile, in the absence of any notable EUR data releases, could the euro continue to struggle to attract support in the wake of the ECB’s dovish policy statement.