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US dollar rallies as cautious mood prevails

Philip McHugh September 17th 2021 - 2 minute read

The US dollar enjoyed strong support on Thursday, as demand for the safe-haven currency was bolstered by a prevailing risk-off environment.

Meanwhile, the pound is on the defensive so far this morning, with GBP/EUR dipping to €1.1709 and GBP/USD muted at $1.3797. GBP/CAD has slipped to CA$1.7454, while GBP/AUD and GBP/NZD retreat to AU$1.8864 and NZ$1.9487 respectively.

Looking ahead, will a disappointing retail sales release from the UK help weaken GBP exchange rates today?

What’s been happening?

The US dollar rallied through yesterday’s European trading session, as a gloomy market mood saw investors favour the currency.

Reinforcing the US dollar’s gains was also the publication of the latest US retail sales report, which revealed a surprise expansion in sales growth last month.

The strong demand for the US dollar came at the expense of the euro, due to the negative correlation between the two currencies, with the single currency also being pressure by some comments from European Central Bank (ECB) President Christine Lagarde, who warned that the Eurozone economy is ‘not out of the woods yet’.

The pound, meanwhile, faced some headwinds on Thursday, due to concerns over a sharp rise in UK energy prices.

GBP investors fear this could be another hurdle for the UK’s economic recovery as some industries have already reported the need to suspend operations at peak times.

What’s coming up?

Turning to today’s session, the pound may find face some headwinds, following the publication of the UK’s latest retail sales figures earlier this morning.

August’s figures reported a surprise contraction in sales growth, likely weakening GBP exchange rates this morning as softer consumer spending may lead to more caution from the Bank of England (BoE).

The publication of the Eurozone’s finalised CPI reading for August is expected to confirm that inflation the bloc accelerated at a 10-year high, but given the ECB’s current dovish bias, any upside in the euro is likely to prove limited.

Finally, the publication of the University of Michigan’s US consumer sentiment index, may reflect positively on the US dollar later this afternoon, if household morale is shown to have improved this month.

Written by
Philip McHugh

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