FX round-up: US dollar slides to fresh 52-week low

The US dollar spot index continued to give back ground at the start of the week amid what analysts at UniCredit Research described as a "symphony of factors" conspiring to the advantage of the single currency.

"One cannot rule out bouts of profit taking, but there is a symphony of factors that work in euro’s favor at the moment. These range from euro-area-specific influences – such as positive political developments (see Germany), a more-hawkish-than-expected ECB, exceptionally strong regional economic data and ongoing undervaluation – to USD-bearish impulses – such as overvaluation, still messy US politics and the possibility of a slightly more dovish Fed on account of inflation undershooting expectations," UniCredit said.

UniCredit also pointed out the recent narrowing seen between bond yields in the US and Germany.

Thus, as of 1839 GMT the US dollar spot index was trading down 0.67% at 90.37, having earlier hit a fresh 52-week low of 90.279, alongside a gain of 0.71% in euro/dollar to 1.22736.

Cable was also significantly higher, jumping 0.57% to 1.38082, despite what appeared to be a somewhat 'dovish' speech from MPC member Sylvia Tenreyro.

In remarks prepared for a speech in London, Tenreyro said: "Going forward, if the economy evolves as in our November forecast, with steadily increasing domestic inflationary pressures, I expect perhaps a couple more increases in Bank Rate will be required over the next three years. But a different outturn for productivity growth would affect that policy rate path. Although I concurred with our November IR projections for potential growth, the analysis I have discussed today leads me to think that in the medium-term, the risks to productivity may be skewed to the upside."

To take note of as well, according to the latest weekly CFTC data, speculative net long positions in the euro reached record levels during the previous week, while net GBP longs climbed to their highest since July 2014.

Nevertheless, Rabobank strategist Jane Foley was cautious, telling clients: "Optimism that a Brexit transition period will be confirmed in the coming months has helped to support the pound. However, looking ahead EU/UK trade talks are likely to be tough and could expose cracks in PM May’s cabinet."