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Dollar Subdued Despite Risk-Off Trends

By Kevin BeckmanMarket OverviewMay 19, 2022 09:36AM ET
Dollar Subdued Despite Risk-Off Trends
By Kevin Beckman   |  May 19, 2022 09:36AM ET
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After a short-lived pause, the dollar is back under pressure on Thursday, threatening fresh local lows during the European hours. The greenback remains the laggard even as risk aversion intensifies across the financial markets amid persistent inflation concerns.

During the recent bounce, the USD index failed around 104.00 and slipped to two-week lows, bringing the market focus back to the 103.00 mark. In part, the dollar’s appeal was further dented by the resurgent demand for the euro after the accounts of the ECB's policy meeting showed that members expressed concerns over high inflation numbers. At that, some members highlighted the importance of acting without undue delay in order to achieve price stability.

The key driver behind the euro’s jump was report that the majority of ECB policymakers are said to be prepared to back at least two 25 bps rate hikes this year (some are leaving the option open for three hikes). Against this backdrop, EUR/USD advanced to the 1.0550 zone that seems to be capping more robust gains, suggesting the euro’s upside potential remains limited despite a more hawkish tone by the ECB.

In a wider picture, the ongoing retreat in the buck looks like a bearish correction from multi-year highs at this stage. The overall uptrend remains intact, especially as the Fed continues to outperform other central banks in tightening while the USD’s safe-haven status keeps it afloat in turbulent times that will persist in the longer term as well. Still, the dollar index could challenge the 103.00 figure to probe May’s lows around 102.35 on a short-term horizon. 

Dollar Subdued Despite Risk-Off Trends

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Dollar Subdued Despite Risk-Off Trends

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