US dollar strengthens in risk-off trade

The US dollar struck higher on Monday, as a prevailing risk-off mood bolstered demand for the safe-haven currency.

Meanwhile the pound is struggling for direction this morning, with GBP/EUR muted at €1.1538 and GBP/USD stable at $1.1847. GBP/CAD and GBP/AUD are holding steady at CA$1.5899 and AU$1.7887, respectively, while GBP/NZD retreats to NZ$1.9309.

Coming up, will a positive Eurozone consumer confidence print help to prop up the euro this afternoon?

What’s been happening?

The US dollar got off to a strong start this week, with investors favouring the safe-haven currency amid a gloomy market mood.

This risk aversion was driven primarily by concerns over China’s fight against Covid as a recent rise in cases has seen more of the country placed back into lockdown. Markets fear the lockdowns could further undermine global growth.

Reinforcing the upside in USD exchange rates were recent signals from the Federal Reserve that it may continue to raise interest rates aggressively in December.

The pound, meanwhile, was unable to find any strong directional bias on Monday as markets remained wary of the UK’s downbeat economic outlook.

GBP investors were also disappointed after Prime Minister Rishi Sunak quashed rumours the UK government might pursue a Swiss-style trade deal with the EU.

At the same time, the euro, was left muted yesterday after Germany’s latest PPI figures came in well below expectations.

What’s coming up?

Looking ahead, a key focus today will be on the Eurozone’s latest consumer confidence figures.

November’s preliminary figures are expected to report another improvement in household sentiment, which could lend some support to the euro today.

In the meantime, the publication of the UK’s latest borrowing figures are acting as a headwind for the pound so far this morning as they revealed government borrowing rose significantly year-on-year in October.

Meanwhile, a series of speeches by Fed could bolster the US dollar later this evening, if they offer additional hints that the bank could pursue another 75bps interest rate hike next month.