Dollar heads for first monthly drop in five months

Published On: May 30, 2022Categories: Latest News1.7 min read

The dollar was a fraction weaker on the euro at $1.0728, just above a five-week low, having dropped about 1.5% on the common currency last week

The dollar nursed last week’s losses on Monday and was headed for its first monthly drop in five months as investors have scaled back bets that rising US rates will spur further gains and as fears of a global recession have receded a little.

The week ahead is full of data that could provide clues on the outlook for global growth, US interest rates and the dollar with Chinese Purchasing Managers’ Index figures, US jobs numbers and growth data in resource bellwether Australia.

Trade was likely to be lightened through Monday as US stock and bond markets close for the Memorial Day public holiday.

Early in the Asia session the dollar was a fraction weaker on the euro at $1.0728, just above a five-week low, having dropped about 1.5% on the common currency last week.

The risk-sensitive Australian and New Zealand dollars were firm after a Friday rally, while the yen was a fraction weaker at 127.28 per dollar.

The Aussie hovered near a three-week high at $0.7161, as did the kiwi at $0.6536.

The dollar can fall further this week. Were it not for China’s lockdown, the global outlook would be brighter, and the dollar lower, said Joe Capurso, head of international economics at the Commonwealth Bank of Australia in Sydney.

The dollar index, which hit a two-decade high of 105.010 earlier in May was steady at 101.660 on Monday. Sterling held last week’s gains at $1.2628.

China’s yuan held steady at 6.7210 per dollar in offshore trade, buoyed by progress out of virus lockdowns.

Most analysts are wary of calling an outright end to the recent dollar strength.

But positive US consumer data and the easing lockdowns in China are helping kindle hopes about global growth, which tends to support exporters’ currencies at the dollar’s expense.

Investors have also seized on hints the Federal Reserve, once it has hiked aggressively over the next two months, might then take a breather.

The Fed has stopped short of validating calls for even more tightening, leading to a plateau in forward expectations, said NatWest Markets’ global head of desk strategy, John Briggs.

About the Author: Jonathan Adams

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