GBP/USD strikes new two-month high

The pound ticked higher on Tuesday, supported by risk-on flows and upbeat UK retail data.

Sterling is trading sideways so far this morning, with GBP/EUR stable at €1.1759 and GBP/USD flat at $1.2762. GBP/CAD is rangebound at CA$1.7423, while GBP/AUD and GBP/NZD hold steady at AU$1.9180 and NZ$2.0800, respectively.

Looking ahead, will an uptick in German inflation bolster demand for the euro today?

What’s been happening?

The pound got off to a broadly positive start this week, with the increasingly risk-sensitive currency benefitting from upbeat market sentiment.

Also supportive of Sterling was the Confederation of British Industry’s (CBI) latest distributive trades index, which reported the UK’s retail sales balance struck a 17-month high in May.

The US dollar was initially subdued on Tuesday as the cautiously optimistic market mood limited demand for the safe-haven currency.

However, the ‘greenback’ was able to claw back some of these losses later in the session, following a surprise improvement in US consumer confidence.

Meanwhile, the euro was undermined by comments from European Central Bank (ECB) policymaker Klaas Knot, who suggested it’s time for the bank to start loosening its monetary policy.

What’s coming up?

Turning to today’s session, the spotlight will undoubtedly be on Germany’s latest consumer price index.

May’s preliminary CPI figures are forecast to report an acceleration of inflation. Will renewed price pressures within the Eurozone’s largest economy trim ECB interest rate cut expectations and drag on the euro today?

Meanwhile, USD investors will look to a speech by Federal Reserve policymaker John Williams for fresh impetus this afternoon. If he strikes a hawkish tone the US dollar may strengthen.

Finally, in the absence of any notable UK economic data, GBP investors may increasingly turn their attention to the upcoming general election and the potential economic impact of the parties’ policy plans.