GBP/USD retreats from seven-month high amid profit taking

Philip McHugh January 24th 2023 - 2 minute read

The pound trended lower on Monday, sliding from a one-month high as it was undermined by a bout of profit taking.

Sterling is holding its ground so far this morning, with GBP/EUR stable at €1.1400 and GBP/USD flat at $1.2390. GBP/CAD is rangebound at $1.6570, while GBP/AUD and GBP/NZD hold steady at AU$1.7644 and NZ$1.9078, respectively.

Coming up, will the latest Eurozone PMI figures report a rebound in service sector activity and lift the euro this morning?

What’s been happening?

The pound initially firmed this week, with the GBP/USD exchange rates briefly climbing to a seven-month high before Sterling fell victim to some profit taking and closed the European session lower.

Reinforcing the GBP selloff were ongoing concerns over the UK’s economy, which faces the threat of severe disruption next week amid a wave of industrial action.

Meanwhile, the euro fluctuated on Monday in response to commentary from several European Central Bank (ECB) policymakers.

While there was a consensus that the ECB needs to deliver two more 50bps interest rate hikes, there was a lack of clarity on what might follow.

Trade in the US dollar was also mixed at the start of the week. While the ‘greenback’ continued to be pressured by fading Federal Reserve rate hike bets, a cautious market mood and rising US Treasury yields extended some support to the currency.

What’s coming up?

Turning to today’s session the spotlight will be on the publication of the latest PMIs from the Eurozone and UK.

Economists forecast the Eurozone PMIs will report the bloc’s service sector returned to growth in January for the first time in six months. This may help to ease Eurozone recession fears and underpin the euro through today’s session.

In contrast the UK’s PMIs are forecast to report growth in both the manufacturing and service sector continued to decline this month. Confirmation of which could weaken the pound.

The US will also see the release of its latest S&P Global PMIs later this afternoon. While not as influential as the ISM figures, today’s PMIs could weaken the US dollar if they indicate growth in the US private sector continued to contract at an accelerated pace.

Written by
Philip McHugh

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