US dollar slips in risk-off trade

The US dollar weakened on Friday as it was undermined by a bullish market mood.

Meanwhile, trade in the pound is mixed this morning, with GBP/EUR muted at €1.1699, and GBP/USD stable at $1.2674. GBP/CAD is rangebound at CA$1.7121, while GBP/AUD is buoyed at AU$1.9332 and GBP/NZD jumps to NZ$2.0541.

Coming up, EUR investors will be looking to a speech by European Central Bank (ECB) President Christine Lagarde for fresh impetus today.

What’s been happening?

The US dollar closed last week on the back foot as a prevailing risk-on mood limited demand for the safe-haven currency.

The continued surge in tech shares appeared to underpin the upbeat sentiment on Friday. Although uncertainty over when the Federal Reserve will start cutting interest rates, ensured the US dollar’s losses remained limited in scope.

At the same time, the pound trended broadly higher on Friday, as the bullish market mood reflected positively on the increasingly risk-sensitive currency.

Meanwhile, the euro drew support from comments from European Central Bank policymaker Joachim Nagel.

Nagel warned against the ‘temptation’ of an early interest rate cut, and urged his colleagues to wait until the bank has a clearer picture of how inflation will unfold in the second quarter.

What’s coming up?

Turning to the start of this week’s session, the focus today is likely to be on a speech by ECB President Christine Lagarde.

EUR investors will be watchful for any remarks that might hint at the potential timing of the ECB’s next interest rate cut. However, if Lagarde pushes back against speculation the bank may begin loosening its monetary policy in April, the euro may rally.

In the meantime, the Confederation of British Industry will publish its latest distributive trades index this morning. Another abysmal retail sales balance could act as a headwind for the pound today.

Finally, in the absence of any notable US economic data, movement in the US dollar is likely to remain tied to market risk dynamics. Will a risk-on mood leave the ‘greenback’ on the defensive?