Pound firms amid risk-on flows

The pound ticked up against the majority of its peers on Tuesday despite an underwhelming mid-tier data release, as it was supported by a positive market mood.

Meanwhile this morning, the pound is mostly flat, with GBP/EUR stable at €1.1868 while GBP/USD is muted at $1.3241. GBP/CAD is rangebound at CA$1.7810, while GBP/AUD is marginally down, trading at AU$1.9474. GBP/NZD holds steady at NZ$2.1201.

Looking ahead, will an upbeat market mood prevail today and bolster GBP further amid a lull in notable data?

What’s been happening?

The pound firmed against the majority of its peers on Tuesday, striking a fresh two-year high against the US dollar, despite the publication of some disappointing UK data.

The Confederation of British Industry’s (CBI) latest distributive trades survey printed below market expectations in August and fell from a previous reading of -43 to -27 rather than rising to -11 as expected.

However, the increasingly risk-sensitive pound was still able to advance amid a risk-positive mood on Tuesday.

The US dollar remained on the back foot on Tuesday as a lull in US data left the ‘greenback’ vulnerable to ongoing Federal Reserve interest rate cut speculation.

Following some dovish commentary from Fed Chair Jerome Powell on Friday, where he spoke at the Jackson Hole symposium, the US dollar struggled to garner investor attention.

Turning to the euro, a couple of underwhelming data releases from Germany undermined the single currency on Tuesday, as Germany’s finalised GDP reading for the second quarter confirmed the Eurozone’s largest economy shrank by 0.1% while the latest GFK consumer confidence index came in lower than expected for September.

What’s coming up?

Turning to today’s session, UK economic data is absent from the calendar, and as such will likely see GBP continue to trade in line with risk dynamics.

Will investors continue to opt for risker assets and underpin GBP? Or will a shift to cautious trade dampen Sterling sentiment?

Similarly to the pound, data from within the Eurozone will also be limited today, which could see the single currency trade without direction 

Turning to the US dollar, market moving data will also be absent, and as such we could see the ‘greenback’ driven by upcoming Federal Reserve speeches.

Should Fed officials maintain a dovish narrative regarding an expected September rate cut, USD may continue to experience selling pressure.