Pound Ticks Higher
The pound ticked higher on Friday as an improving market mood helped to underpin the increasingly risk-sensitive currency.
Sterling is trading in a wide range so far this morning, with GBP/EUR flat at €1.1363 and GBP/USD climbing to $1.2151. GBP/CAD is stable at $1.6278, while GBP/AUD and GBP/NZD retreat to AU$1.7530 and NZ$1.8992, respectively.
Looking ahead, will some lacklustre German industrial data leave the euro on the back foot today?
What’s been happening?
The pound closed last week’s session on a positive note. A bullish market mood helped Sterling to recoup some of its losses from earlier in the week.
The improving market mood came on the back of the latest US non farm payroll release, which pulled the US dollar lower at the same time.
While payrolls printed above expectations in December, the accompanying earnings figures fell well short of forecasts.
USD investors suggested signs that wage growth is moderating might limit the Federal Reserve’s appetite for several more interest rate hikes in 2023. A more cautious Fed could relieve pressure on the global economy.
The USD selloff then accelerated with the publication of the latest ISM non-manufacturing PMI, after it reported a surprise slump in US service sector growth at the end of 2022.
The euro, meanwhile, faced headwinds at the start of Friday’s session, following a dramatic contraction in German factory orders and a weaker-than-expected Eurozone inflation print.
However, the pullback in the US dollar helped to temper the euro’s losses later in the day, thanks to the negative correlation between the pairing.
What’s coming up?
Kicking off this week’s session was the publication of Germany’s latest industrial production release.
While factory output in November beat expectations, a downwards revision to October’s reading is likely to add to concerns over Germany’s vital manufacturing sector and is limiting the appeal of the euro at the start of the session.
EUR exchange rates could find some traction later in the morning if the Eurozone’s latest unemployment figures report another fall in the bloc’s jobless rate in November.
Meanwhile, with GBP data thin on the ground through the first half of the week, the pound is likely to be driven by domestic headlines. Concerns over ongoing industrial action could act as a headwind for Sterling.
Finally, in the absence of any notable USD releases, movement in the US dollar is likely to be tied to market risk appetite. An upbeat mood could see the US dollar extend its selloff.
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