US dollar wavers amid cheery trade

The US dollar slipped yesterday amid a risk-on mood but managed to recoup its losses amid a rise in US Treasury yields.

So far today the pound is mixed. GBP/EUR and GBP/USD are both up, rising to €1.1378 and $1.2336. GBP/CAD is flat at CA$1.6711, while GBP/AUD and GBP/NZD are down to AU$1.8393 and NZ$1.9769.

A key release for EUR investors today is Germany’s latest consumer price index. Could a sharp cooldown in inflation dent European Central Bank (ECB) interest rate rise bets?

What’s been happening?

The US dollar initially dropped yesterday as European markets continued to stabilise, with the cheery tone denting the safe-haven ‘greenback’.

USD was able to claw back some gains as the session progressed. A rise in US Treasury yields lent the currency some support.

The pound also faced some choppy trade as a lack of UK economic data left Sterling to move without a clear direction.

As for the euro, EUR enjoyed an initial upside after German consumer confidence improved to a nine-month high. However, the data still printed below expectations, and the euro trimmed its gains later in the session due to its negative correlation with the recovering US dollar.

What’s coming up?

Market-moving UK economic data remains thin on the ground today. As a result, Sterling could continue to trade without a clear direction.

Meanwhile, EU and US data releases are much more abundant. For EUR, an expected rise in Eurozone economic sentiment could give the euro a lift early on.

Later on, however, German inflation is expected to cool sharply. If the data prints true to forecasts, a pullback in ECB rate rise bets may sap the single currency’s appeal.

Over the Atlantic, low jobless claims and positive fourth-quarter GDP growth could support the US dollar.

Risk appetite will likely also continue to impact the safe-haven ‘greenback’. If markets remain upbeat, USD could face headwinds.