US dollar slides amid profit taking

The US dollar retreated on Thursday as the currency’s recent bullish run was derailed by a bout of profit taking.

Meanwhile, trade in the pound is a little mixed so far this morning, with GBP/EUR stable at €1.1554 and GBP/USD climbing to $1.2242. GBP/CAD is rangebound at CA$1.6470, while GBP/AUD and GBP/NZD slide to AU$1.8910 and NZ$2.0311, respectively.

Coming up, could a weak core PCE price index weaken Federal Reserve interest rate expectations and extend the US dollar’s losses today?

What’s been happening?

The US dollar slumped during yesterday’s session, leading the currency to retreat from the multi-month highs struck earlier in the week.

This pullback in USD appeared connected to an end-of-quarter market correction, with USD investors seeking to book their recent profits.

The US dollar’s weakness was tempered slightly however, as US initial jobless claims beat expectations again last week.

Thursday’s slide in the US dollar proved beneficial to the euro, with the negative correlation between the pairing allowing the single currency to rally, despite softer-than-expected German inflation figures.

At the same time, the pound fluctuated yesterday. Sterling initially firmed as a result of an improving market mood, before relinquishing most of these gains in the afternoon amid ongoing uncertainty over the UK’s economic outlook.

What’s coming up?

Closing out this week’s session will be the publication of the latest US core PCE price index.

As the Federal Reserve’s preferred indicator for inflation there is the potential for the US dollar to extend its losses if a weaker-than-expected reading dents Fed rate hike bets.

In the meantime, the Eurozone will publish its consumer price index this morning. September’s preliminary CPI figures are forecast to report a sharp deceleration in inflation.

This could drag on the euro today as another drop in inflation is likely to quash any lingering hopes that the European Central Bank (ECB) might raise interest rates one final time.

This follows the publication of the UK’s latest GDP figures at the start of today’s session. While second quarter growth printed in line with expectations, Q1 growth was revised higher, offering some support to the pound this morning.