US dollar softens amid some profit taking

The US dollar slipped on Friday, undermined by a bout of profit taking and a concerning drop in US personal spending.

Meanwhile, trade in the pound is a little mixed so far this morning, with GBP/EUR flat at €1.2026 and GBP/USD buoyed at $1.3434. GBP/CAD is rangebound at C$1.7099, while GBP/AUD and GBP/NZD slip to AU$1.9073 and NZ$2.0425, respectively.

Looking ahead, will a slowing of Eurozone GDP see the euro stumble at the start of this week?

What’s been happening?

The US dollar failed to stick the landing at the end of last week, with the currency falling victim to some profit taking after appreciating sharply earlier in the session.

Further undermining the appeal of the ‘greenback’ was the publication of the latest US personal spending index, which reported spending slumped in December for the first time in ten months.

The pound, meanwhile, ticked higher at the end of last week, with the currency appearing to benefit from the apparent delay of the Sue Gray report.

This uptick in Sterling was the reinforced by reports suggesting some positive progress was being made in Brexit talks regarding the Northern Ireland protocol.

At the same time, the euro struggled to attract support on Friday after Germany’s latest GDP figures reported a larger-than-expected contraction of economic growth in the fourth quarter.

What’s coming up?

Kicking of this week’s session we have the publication of the Eurozone’s latest GDP release. Will a drop in growth in the last quarter of 2021 weaken the euro?

Also influencing EUR exchange rates will be the preliminary release of Germany’s consumer price index, where an expected slowing of inflation could dent the single currency as it validates the European Central Bank’s (ECB) stance that the recent spike in inflation pressure is ‘transitory’.

For GBP investors the focus at the start of this week may remain on UK politics. If the Sue Gray report is finally published then the pound could be infused with some notable volatility.

Across the pond, the spotlight in the first half of the week will be on the ISM manufacturing PMI. A slowing of activity in the US factory sector this month could dampen the appeal of the US dollar.