US dollar bolstered by rising Treasury yields

Philip McHugh January 30th 2023 - 2 minute read

The US dollar trended higher on Friday as it was underpinned by an uptick in US Treasury yields.

Meanwhile, trade in the pound is mixed so far this morning, with GBP/EUR slipping to €1.1383 and GBP/USD flat at $1.2390. GBP/CAD and GBP/NZD are rangebound at CA$1.6523 and NZ$1.9101, respectively, while GBP/AUD advances to AU$1.7501.

Looking ahead, will a weak German GDP release lead the euro to give some ground this morning?

What’s been happening?

The US dollar closed last week’s session on a positive note as USD exchange rates rose in tandem with US Treasury yields.

The upside in USD exchange rates was also supported by a prevailing risk-off mood, with USD investors largely shrugging of the latest core PCE price index as the Federal Reserve’s preferred indicator for inflation printed in line with expectations.

This then left the euro on the backfoot on Friday as a result of its strong negative correlation with the US dollar. EUR sentiment also remained weak amid fears the conflict in Ukraine will escalate in the coming weeks.

The pound, meanwhile, traded sideways at the end of last week as a speech by Chancellor Jeremy Hunt did little to bolster UK growth expectations.

What’s coming up?

Turning to this week, the focus at the start of the session is likely to be Germany’s latest GDP figures.

The latest flash release could place some pressure on the euro this morning as economists forecast it will report growth in the Eurozone’s largest economy stalled in the last quarter of 2022.

On a more positive note, the Eurozone’s latest economic sentiment index is expected to have risen again in January. Will this be enough to offset an underwhelming German GPD print?

Movement in the US dollar is likely to be limited today amid the absence of any notable USD data releases ahead of the Fed’s interest rate decision on Wednesday.

UK data is also thin on the ground today which could also leave the pound without any strong directional bias at the start of the week.

Written by
Philip McHugh

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