GBP/USD rebounds to $1.39 as US dollar undermined by profit taking

The US dollar took a tumble on Monday, as the currency was knocked by a bout of profit taking.

Meanwhile, the pound is edging lower in early trade today, with GBP/EUR muted at €1.1674 and GBP/USD subdued at $1.3897. GBP/CAD is rangebound at C$1.7201, while GBP/AUD and GBP/NZD hold steady at AU$1.8490 and NZ$1.9899 respectively.

Coming up, USD investors will look to a speech by Federal Reserve Chair, Jerome Powell for fresh impetus today.
 

What’s been happening?

The US dollar got off to a poor start this week, with the currency relinquishing a good portion of last week’s gains.

After surging in the wake of the latest Federal Reserve meeting, some analysts have suggested the ‘greenback’ may have entered overbought territory, which alongside a notable improvement in risk appetite, saw the US dollar run afoul of some profit taking on Monday.

This slump in USD exchange rates was to the benefit of the euro however, with the negative correlation between the pairing offering some support to the single currency.

But limiting the upside in EUR exchange rates were comments from European Central Bank (ECB) President Christine Lagarde, in which she suggested that any monetary ‘tightening would be premature and would pose a risk to the ongoing economic recovery’.

The pound, meanwhile, mounted a convincing recovery during yesterday’s session, with Sterling sentiment being bolstered by some hawkish speculation ahead of the Bank of England’s (BoE) rate decision later this week.
 

What’s coming up?

In the spotlight today we have Federal Reserve Chair, Jerome Powell’s testimony in front of Congress later this evening.

Powell will be quizzed about the Fed’s coronavirus response and bond buying programme, and he could undermine the US dollar if he repeats some of his comments following last week’s rate decision, in which he appeared to play down tapering expectations.

For EUR investors the focus will be on the Eurozone’s latest consumer confidence index, with an improvement in household morale this month potentially lifting the single currency.

In the meantime, the Confederation of British Industry (CBI) will publish its latest industrial order release, which may boost the pound if the order book balance continued to shoot higher this month.