US dollar slides on inflation miss

The US dollar stumbled on Friday, following the publication of weaker-than-expected US inflation figures.

Meanwhile, trade in the pounds is mixed this morning, with GBP/EUR ticking up to €1.1721, and GBP/USD buoyed at $1.2717. GBP/CAD is rangebound at CA$1.7089, while GBP/AUD and GBP/NZD dip to AU$1.9273 and NZ$2.0805, respectively.

Coming up, movement in the currency market may be limited today as investors brace for upcoming data.

What’s been happening?

The US dollar closed last week’s session on the back foot, following the publication of the latest core PCE price index.

The Federal Reserve’s preferred indicator for inflation fell more than forecast in December, striking its lowest levels since March 2021 and leading to an uptick in Fed rate cut bets.

Further undermining the safe-haven ‘greenback’ was a prevailing risk-on market mood.

The euro’s negative correlation with the US dollar, offered some support to the single currency on Friday. But these gains were ultimately capped as EUR investors remained dejected in the wake of the European Central Bank’s (ECB) interest rate decision on Thursday.

Meanwhile, the upbeat mood buoyed the increasingly risk-sensitive pound at the end of the last week, allowing it to close the session higher against both the US dollar and euro.

What’s coming up?

Looking ahead, data is thin on the ground today, which could limit volatility in the currency, particularly as investors brace for some high-impact releases later in the week.

The Fed’s first interest rate decision of the year is undoubtedly the highlight this week. No policy changes are expected from the bank this week, but USD investors will be paying close attention to the language used by the Fed in its latest policy statement.

The Bank of England (BoE) will also conclude its latest policy meeting this week. The BoE is also expected to keep interest rates on hold, but the pound may be propelled higher if policymakers make a greater effort to downplay expectations for impending rate cuts.

In the meantime, the euro could face headwinds in the first half of this week as the Eurozone’s latest GDP figures are expected to confirm the bloc slipped into a recession in the second half of 2023.