The US dollar fell sharply on Monday as risk-on trade and falling US Treasury yields weighed heavily on the safe-haven currency.
Meanwhile, the pound is holding its ground so far this morning, with GBP/EUR flat at €1.1401 and GBP/USD stable at $1.3827. GBP/CAD is rangebound at C$1.7543, while GBP/AUD and GBP/NZD are holding steady at AU$1.7853 and NZ$1.9114, respectively.
Looking ahead, there could be more weakness in the US dollar to come this afternoon, amidst forecasts of a rise in domestic inflation.
What’s been happening?The US dollar experienced a clear selling bias through yesterday’s trading session, courtesy of a drop in US Treasury yields.
Driving the drop in Treasury yields were growing concerns over US fiscal stimulus, as Biden’s $1.9 trillion package faces potential delays due to some disagreements amongst Democrats over who should be eligible for stimulus checks.
This plunge in the US dollar was to the benefit of the euro, with the negative correlation in the pairing allowing the single currency to firm on Tuesday, although these gains remained tempered by ongoing concerns over the EU’s slow vaccination rollout.
The pound, meanwhile, mostly held firm yesterday as success of the UK’s vaccination programme continued to lend support to Sterling despite some lingering concerns over the timeframe for the UK government easing its lockdown measures.
What’s coming up?Top of the agenda today we have the publication of the latest US consumer price index.
Consensus estimates predict January’s figures will report US inflation accelerated from 1.4% to 1.5%, likely further weakening US Treasury yields, which in turn is likely to weigh on the US dollar later this afternoon.
For GBP investors the spotlight is likely to remain on UK coronavirus developments, although a speech by Bank of England Governor Andrew Bailey could also provide fresh impetus later this afternoon.
On the other side of the Channel, EUR investors will be focused on a speech by European Central Bank President Christine Lagarde, whose tone is likely to decide the direction of the euro later this afternoon.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)