Pound Buoyed by Economic Recovery Hopes
Sterling extended its rally yesterday, with the Pound Euro exchange rate climbing higher, although a rebound in the US Dollar limited GBP/USD.
GBP exchange rates continued to be underpinned by hopes the UK may soon be able to start easing lockdown restrictions.
It’s hoped that much of the economy could be reopened over the next couple of months, and that pent up demand will help to drive a strong rebound in UK economic growth through the second half of 2021.
Looking ahead, the publication of the UK’s consumer price index earlier this morning could help the Pound extend these gains further, after reporting a surprise uptick in domestic inflation last month.
The uptick inflation appears to have supported the Pound Euro exchange rate so far this morning as GBP/EUR has hit €1.15.
Euro Mixed on Upbeat Data
The Euro (EUR) started strongly on Tuesday, with the single currency strengthening after the latest Eurozone GDP estimate and German economic sentiment index printed above expectations.
However, the Euro’s negative correlation with the US Dollar (USD) saw these gains trimmed through the second half of the session following a strong pick-up in the US currency.
In the absence of any notable Eurozone data releases today, the EUR/USD relationship may continue to act as a key catalyst in the Euro, potentially extending the single currency’s losses.
US Dollar Bolstered by Surging US Treasury Yields
The US Dollar started yesterday’s session on the back foot, with the positive market mood and surging equity markets dampening demand for the safe-haven currency.
However, the ‘Greenback’ subsequently rallied at the opening of the US trading session, with the US Dollar rising in step with a strong pick-up in US Treasury yields.
Turning to today’s session, the US Dollar could enjoy additional support as the latest US retail sales are expected to report a strong rebound in sales growth last month. However, the minutes from the Federal Reserve’s latest policy meeting could cap any upside in USD exchange rates if they reinforce the Fed’s dovish outlook.
Canadian Dollar Retreats as WTI Oil Slips below $60
The Canadian Dollar (CAD) stumbled on Tuesday, with the appeal of the commodity-linked ‘Loonie’ being dented as WTI oil prices slipped back below $60 a barrel.
Coming up, there is a chance for CAD exchange rates to rally later this afternoon as Canada’s latest CPI figures are expected to report an acceleration of domestic inflation in January.
Australian Dollar Stumbles on Dovish RBA Comments
The Australian Dollar (AUD) retreated overnight on Tuesday in response to comments from Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent in which he hinted the bank may take steps to curb AUD strength.
New Zealand Dollar Slips on USD Strength
The New Zealand Dollar (NZD) also fell back in overnight trade, with investors shunning the high-yield ‘Kiwi’ as the strength of the US Dollar dented market risk appetite.