Dollar drifts up but set for biggest weekly drop in 4 months
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[May 27, 2022] By
Saikat Chatterjee
LONDON (Reuters) - The dollar edged higher
on Friday but was on track for its biggest weekly drop in nearly four
months as traders lowered Federal Reserve rate hike expectations amid
signs the U.S. central bank might slow or even pause its tightening
cycle in the second half of the year.
A broad-based decline in U.S. Treasury yields, weak economic data and
cautious comments by some Fed policymakers including Atlanta Fed
President Raphael Bostic this week have raised the prospect that the
dollar's gains premised on aggressive rate hikes may have halted for
now.
"The market’s tentative speculation about a pause in the Fed’s
tightening cycle in September is surely contributing to keeping the
dollar soft," ING strategists said.
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The dollar index, which measures the greenback against a basket of six
other major currencies, fell as low as 101.43 for the first time since
April 25. On a weekly basis, it was down 1.3%, its biggest weekly drop
since the first week of February.
It hit a nearly two-decade peak above 105 earlier this month but has
retreated since then as economic data has weakened. A Citigroup economic
surprise index for the United States has fallen to its lowest level
since September 2021.
But some analysts were cautious about calling for a deeper drop in the
dollar with global markets still on edge.
"Month-end portfolio rebalancing is expected to give the dollar a boost
so I would expect losses to ebb and suspense is high for ISM and
payrolls next week after the dreadful new homes sales data this week,"
said Kenneth Broux, an FX strategist at Societe Generale in London.
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U.S. dollar notes are seen in front of a stock graph in this
November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration/File
Photo
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Minutes from the Fed's May meeting this week showed most participants believed
50 basis-point hikes would be appropriate at the June and July policy meetings,
but many thought big, early hikes would allow room to pause later in the year to
assess the effects of that policy tightening.
The chief beneficiary of the dollar's decline is the euro but that momentum has
also stalled as investors believe a lot of the expected rate hikes from the
European Central Bank are already baked into current levels.
Against the U.S. unit, the single currency rose briefly to its highest levels in
a month at $1.0765. Sterling was firm at $1.2666.
Better risk sentiment did not help bitcoin however, which slipped 1.62% to
around $28,710, continuing this week's gradual decline from the psychologically
important $30,000 level.
The risk-sensitive Australian dollar rallied 0.6% to $0.7142, while the New
Zealand dollar jumped 0.65% to $0.6520.
Graphic: King Dollar:
https://fingfx.thomsonreuters.com/
gfx/mkt/byprjdqgape/King%20dollar.JPG
(Reporting by Saikat Chatterjee; additional reporting by Kevin Buckland in
Tokyo; editing by Susan Fenton, Kirsten Donovan)
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