© Reuters. FILE PHOTO: U.S. dollar banknotes are shown in this illustration taken February 14, 2022. REUTERS/Dado Ruvic
By Kevin Buckland
TOKYO (Reuters) – The U.S. dollar slipped against its major peers on Friday, on course for its first weekly decline this month as investors continue to assess the Federal Reserve’s policy trajectory and whether aggressive rate hikes would trigger a recession.
The safe-haven currency also lost support amid improving market sentiment, which saw regional stock markets rise and supported riskier currencies like the Australian and New Zealand dollars.
The , which measures the greenback against six rivals, fell 0.2% to 104.19 in Asia. That wiped out the previous day’s 0.19% rise, which was mainly driven by a weaker euro after weak European factory data reduced bets on European Central Bank tightening.
“Recession talk has upended the DXY uptrend, but we don’t believe retracements have legs beyond the 102 lows,” Westpac strategists wrote in a client note, referring to the index. of the dollar.
“Fed Funds is expected to exceed 3% by year end, so USD interest rate support should ultimately continue to strengthen,” they added. “Meanwhile, the ECB is struggling to contain peripheral spreads and the Eurozone is facing greater stagflation challenges, which is hardly attractive.
Dollar trading has been choppy this week, with markets now betting on more cautious policy action from the Fed after another expected rate hike of 75 basis points in July. The dollar index fell 0.42% over the period.
Fed Governor Michelle Bowman said on Thursday that she supported 50 basis point hikes for “next” meetings after those in July. Meanwhile, Fed Chairman Jerome Powell in his second day of congressional testimony stressed the central bank’s “unconditional” commitment to controlling inflation, even amid risks to growth.
Recession fears tamed Treasury yields overnight, removing key support for the dollar, with that of the 10-year note slipping to a two-week low. [US/]
Against the yen, which is extremely sensitive to changes in US yields, the dollar eased 0.2% to 134.66. For the week, it was down 0.25% and poised to snap a three-week winning streak of 6.19%.
The euro rose 0.22% to $1.05435, but fell 0.44% overnight after weaker than expected German and French PMI figures.
Germany also triggered the “alarm phase” of its emergency gas plan on Thursday in response to dwindling Russian supplies.
“The market has started to cut prices by a reasonable amount for the next two ECB meetings,” Ken Crompton, interest rate strategist at National Australia Bank (OTC:), said during a podcast. .
“There have been a few factors there that have really added up, that have really started to question how far the ECB will be able to go in its tightening. »
For the week however, the euro remains up 0.52% against the dollar.
The pound rebounded 0.14% to $1.22785, putting it on track for a weekly 0.48% rise that would end a three-week losing streak.
The Australian dollar rose 0.28% to $0.6914 but was still forecast for a weekly decline of 0.32%, its third consecutive week of declines. The New Zealand dollar gained 0.4% to $0.6302, trimming its loss for the week to 0.19%.