US Open Note – Dollar loses ground after five weeks of gains



Dollar index ticks down as euro approaches $1.06

On Friday, the US dollar was on track to have its worst week against key rivals since the beginning of February. Global stocks have been falling this week as well due to risks to growth from aggressive monetary tightening - led by the Federal Reserve - and China's strict lockdowns to quash an outbreak of Covid-19. The appeal of the dollar as a haven was eclipsed overnight by a decline in US yields as investors rushed for the safety of Treasury bonds. US futures are suggesting a positive open after a neutral-to-bearish day on Thursday, remaining near their latest lows.

Already troubled financial markets have the potential to become even more volatile if the Federal Reserve of the US takes its political mandate at face value and places an exclusive emphasis on reining in inflation.

There is little doubt that the Federal Reserve and other central banks are racing to contain the worst cost-of-living squeeze in 40 years. While the decision is never that cut and dry for Fed policymakers with dual price stability and full employment mandates, there is little doubt that these institutions are under enormous public pressure.

The dollar index, which compares the value of the dollar against six major currencies, inched up 0.08% to 102.96 heading into the weekend, but it remained lower for the week overall, putting it on track to end a winning streak that had lasted for the previous six weeks. Dollar/yen reached the 128.00 round number earlier today but has failed to post significant gains. Euro/dollar is flirting with the 1.0600 psychological level after the impressive bullish day yesterday when it surpassed the 20-day simple moving average (SMA).

Sterling tries to gain more territory

The latest economic data suggested the market might not need to scale back much further its expectations for BoE rate hikes, which led to sterling being on track for a weekly gain against a weakening dollar after four straight red weeks.

Money markets are completely pricing in another interest rate hike of 25 bps at the Bank of England's meeting in June and 125 bps of tightening by the end of the year. This is an increase from about 115 bps on Tuesday, which was immediately after positive labor market data.

Gold and oil move marginally higher

Oil prices are rising slightly on Friday and are expected to be flat due to market fears about slowing economic growth, which is impacting demand. However, this is somewhat being offset by the planned European ban on Russian oil. Gold prices are continuing yesterday’s impressive bullish rally, remaining well above $1,800/per ounce. The antipodean currencies are heading north as well versus the greenback.

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