US dollar fluctuates amid mixed mood

The US dollar traded in a wide range yesterday as a fluctuating market mood infused volatility into the currency.

Meanwhile, the pound is trading in a narrow range so far this morning, with GBP/EUR muted at €1.1685 and GBP/USD stable at $1.2709. GBP/CAD is rangebound at CA$1.7099, while GBP/AUD ticks up to AU$1.9306 and GBP/NZD remains flat at NZ$2.0790.

Coming up, will an upbeat services PMI help propel Sterling higher today?

What’s been happening?

The US dollar initially stumbled on Tuesday as a risk-positive mood limited the appeal of the safe-haven currency.

However, a cautious shift in market sentiment quickly reversed these losses which, alongside an uptick in US Treasury yields, allowed the ‘greenback’ to close the European session higher.

In contrast, the pound opened yesterday’s session on firm footing as a larger-than-expected fall in UK government borrowing fuelled hopes for growth-boosting tax cuts in Chancellor Jeremy Hunt’s Spring Budget.

Sterling then shed these gains later in the day as market risk appetite soured.

Meanwhile, the euro stumbled through yesterday’s European session. This downturn in the single currency was driven by its negative correlation with the US dollar, in addition to a sense of caution ahead of the European Central Bank’s (ECB) interest rate decision on Thursday.

What’s coming up?

The publication of the latest PMI releases from the UK and Eurozone will be the primary focus today.

The UK data is expected to report another expansion of growth in the country’s vital services sector, which may provide a boost to the pound this morning.

In contrast, the Eurozone’s private sector is expected to have contracted again this month, potentially placing pressure on the euro. Although any losses are likely to be tempered as EUR investors remain focused on the ECB’s upcoming rate decision.

Later this afternoon we will see the publication of the US S&P PMI releases. While not as influential as the ISM figures, today’s PMIs could still drag on the US dollar if they report activity in the US manufacturing and services sectors remained weak this month.