US dollar stumbles in bullish trade

Philip McHugh May 24th 2022 - 2 minute read

The US dollar fell back on Monday as a prevailing risk-on mood sapped demand for the safe-haven currency.

Meanwhile, trade in the pound is mixed this morning, with GBP/EUR slipping to €1.1737 and GBP/USD buoyed at $1.2588. GBP/CAD is stable at C$1.6091, while GBP/AUD and GBP/NZD hold steady at AU$1.7737 and NZ$1.9520, respectively.

Looking ahead, will lacklustre PMI releases from the UK and Eurozone weaken demand for the pound and euro this morning?

What’s been happening?

The US dollar got off to a poor start this week, with investors shunning the safe-haven currency as a bullish market mood prevailed.

The sanguine mood comes amid hopes China may soon begin easing its Covid lockdowns.

Due to its negative correlation with the US dollar, the euro quickly found support on Monday.

Reinforcing the euro were comments from European Central Bank (ECB) President Christine Lagarde, in which she suggested the bank is likely to exit negative rates by the end of the third quarter, with its first interest rate hike to take place in July.

The pound, meanwhile, was underpinned by risk-on flows yesterday, with additional support being drawn from some hawkish comments from Bank of England (BoE) Governor Andrew Bailey.

What’s coming up?

Turning to today’s session the focus is likely to be on the latest PMI releases from the UK and Eurozone.

Up first will be the Eurozone releases. Analysts forecast growth in the bloc’s private sector growth will have slowed modestly this month, potentially undermined the euro this morning.

However, economists are predicting the slowdown in the UK’s private sector will be even more notable, likely leading to greater losses for the pound.

Any pullback in Sterling may be further compounded by the release of the Confederation of British Industry’s (CBI) distributive trades index, with May’s release expected to report another sizable slump in retail sales volumes.

Finally, USD investors are likely to look to a speech by Federal Reserve Chair Jerome Powell for fresh impetus later this evening.

Written by
Philip McHugh

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