EUR/USD climbs just short of $1.20 as Biden Stimulus optimism boost market sentiment

The US dollar trended lower on Friday, with demand for the ‘greenback’ weakening amidst a prevailing risk-on mood.

Sterling remains subdued so far this morning, with GBP/EUR dipping to €1.1664 and GBP/USD muted at $1.3928. GBP/CAD is down at C$1.7121, while GBP/AUD and GBP/NZD retreat to AU$1.8330 and NZ$1.9661 respectively.

Looking ahead, will another disappointing payroll release put more pressure on USD exchange rates this week?
 

What’s been happening?

The US dollar ended last week’s session on a low, with optimism over President Biden’s new infrastructure stimulus package, bolstering market risk appetite at the expense of the safe-haven currency.

This downside in USD exchange rates was further reinforced by the publication of the latest PCE price index as it reported a smaller-than-expected rise in US inflation last month.

The euro’s strong negative correlation with the US dollar, alongside a stronger-than-expected consumer confidence index from Germany, helped to propel EUR exchange rates higher on Friday.

At the same time, the pound remained on the defensive at the end of last week, with Sterling sentiment continuing to be pressured by the Bank of England’s (BoE) surprisingly dovish turn on Thursday.
 

What’s coming up?

Turning to this week, the biggest data release of the session will no doubt be the latest US payroll figures.

With the Federal Reserve tying its policy stance to US employment, and payrolls undershooting expectations in both April and May, USD investors will be laser focused on June’s release, with another miss potentially resulting in a sharp slump in the US dollar later this week.

In the meantime, the publication of Germany’s consumer price index will be the primary focus for EUR investors in the first half of this week.

While inflation is likely to have remained robust through June, any upside in the euro may prove limited given the European Central Bank’s (ECB) current reluctance to tighten monetary policy.

In the absence of any notable data releases, UK coronavirus statistics are likely to act as they main catalyst of movement in the pound at the start of this week, with Sterling likely to falter if domestic cases continue to rise.