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US dollar softens amid falling US Treasury yields

currency-newsUS dollar softens amid falling US Treasury yields
The US dollar retreated on Tuesday, with the currency tracking US Treasury yields lower.

Meanwhile, the pound is trading in a narrow range so far this morning, with GBP/EUR flat at €1.1996 and GBP/USD stable at $1.3538. GBP/CAD is rangebound at C$1.7166, while GBP/AUD and GBP/NZD hold steady at AU$1.8957 and NZ$2.0396, respectively.

Looking ahead, will a slowing of Eurozone inflation last month limit the appeal of the euro today?

What’s been happening?

The US dollar was met by broad selling pressure during yesterday’s session as the US currency fell in tandem with US Treasury yields in the wake of some dovish comments from Federal Reserve policy makers.

Also dragging on USD exchange rates was the release of the latest ISM manufacturing PMI, which reported US factory sector activity slowed to a 16-month low in January.

At the same time, the publication of some mixed economic releases from the Eurozone, left the euro to trade without any strong directional bias, in spite of its negative correlation with the US dollar.

This saw a much sharper-than-expected contraction in German retail sales in December offset the publication of a robust Eurozone manufacturing PMI as well as an upbeat jobs report showing a surprising drop in unemployment in the bloc in November.

The pound, meanwhile, was able to tick higher on Tuesday, with GBP investors seemingly willing to shrug off concerns over Boris Johnson’s political woes in the wake of the Sue Gray report and focus on the release of a stronger-than-expected UK manufacturing PMI.

What’s coming up?

In the spotlight today will be the publication of the Eurozone’s latest consumer price index.

January’s preliminary figures are expected to report inflation in the bloc peaked at the end of 2021 and has now started to slow.

This could weaken the euro as it would support the European Central Bank’s (ECB) view that the current inflationary pressures in the Eurozone will ease through 2022 and allow the bank to leave its ultra-accommodative monetary policy in place.

For USD investors the focus today will be on the latest US ADP employment figures. January’s release could dent the US dollar this afternoon if a sharp fall in employment growth is seen as a worrying indicator for Friday’s more influential payroll report.

Finally, we could see the pound remain in a narrow range through today’s session as GBP investors avoid making any bullish bets ahead of the Bank of England’s (BoE) rate decision on Thursday.
Philip McHugh

Philip McHugh

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)

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