US dollar fluctuates in choppy trade

Trade in the US dollar was mixed on Thursday, as a volatile market mood and falling US Treasury yields, pulled the currency in two different directions

Meanwhile, the pound faces resistance this morning, with GBP/EUR subdued at €1.1449 and GBP/USD sliding to $1.2103. GBP/CAD has dipped to CA$1.6604, while GBP/AUD and GBP/NZD hold steady at AU$1.9179 and NZ$2.0769, respectively.

Sterling is likely to remain firmly on the backfoot today after an abysmal UK retail sales print.

What’s been happening?

The US dollar traded in a wide range through yesterday’s European trading session. Initially strengthening as tensions in the Middle East stoked safe-haven demand, before being undermined by a pullback in US Treasury yields.

USD exchange rates then came under further pressure in the evening, following a speech from Federal Reserve Chair Jerome Powell, in which he noted that the recent surge in US bonds could limit the need for further monetary tightening.

The euro also benefitted from safe-haven flows on Thursday, with the single currency’s gains being underpinned later in the session by its negative correlation with the US dollar.

Meanwhile the pound was left muted yesterday amid a lull in data. While the increasingly risk-sensitive currency was undermined by the cautious mood, Sterling was able to temper its losses thanks to Bank of England (BoE) interest rate speculation.

What’s coming up?

Turning to today, the most impactful data release will be the publication of the UK’s latest retail sales figures.

In data published at the start of the European trading session, UK retail sales were reported to have contracted in September.

The slump from 0.4% to –0.9% last month was much sharper than expected. This has revived concerns over the UK’s economic resilience and leaves the pound to close the week on a sour note.

Also published this morning was Germany’s latest producer price index. A surprise decline in producer prices last month could limit the euro’s upside potential today.

Finally, in the absence of any notable US data, movement in the US dollar is likely to be tied to market risk dynamics. Potentially leading the ‘greenback’ to strengthen if investors sentiment continues to deteriorate.