GBP/USD rangebound amid cautious optimism

The US dollar was flat on Monday as modest investor optimism limited the currency’s upside potential.

Meanwhile, the pound is trading sideways so far this morning, with GBP/EUR muted at €1.1868 and GBP/USD subdued at $1.2916. GBP/CAD is flat at CA$1.7781, while GBP/AUD and GBP/NZD hold steady at AU$1.9486 and NZ$2.1647, respectively.

Looking ahead, will a continued improvement in Eurozone consumer confidence help to lift the euro this afternoon?

What’s been happening?

The US dollar traded in a narrow range at the start of this week as demand for the safe-haven currency was undermined by a cautiously optimistic market mood.

This was supported by growing expectations that the Federal Reserve will loosen its monetary policy a couple of times in 2024, with the first interest rate cut widely expected in September.

Further tempering the dollar’s upside potential was a sense of political uncertainty in the US, after Joe Biden withdrew from the 2024 presidential race on Sunday.

Meanwhile, the pound was flat on Monday as markets digested reports over the weekend which suggested Chancellor Rachel Reeves was considering a 5.5% increase in public sector pay.

GBP investors fear the estimated £10bn cost could further strain UK government finances at a time when they are already stretched thin.

At the same time, the euro was also muted during yesterday’s session as some EUR investors began to price in a September interest rate cut from the European Central Bank (ECB).

What’s coming up?

In terms of economic data, today’s only notable release is the Eurozone’s latest consumer confidence survey later this afternoon.

Analysts predict July’s release will report that household sentiment improved for a sixth consecutive month, potentially lending some support to the single currency.

On the other side of the Atlantic, the focus may remain on US political developments. While Vice President Kamala Harris looks likely to become the Democrat Presidential nominee, the sudden shake up of the election may continue to infuse some volatility into the US dollar.

Finally, with UK data in short supply, any movement in the pound may prove limited today.