The dollar is back on the offensive across the board (except for versus Swiss franc) on Friday after two days of solid losses. The USD index climbed back above 104.00 but still lacks recovery momentum, struggling around 104.60 as risk sentiment has improved somehow at the end of a very tough week. European stocks switched into recovery mode, and so did US equities. Still, Wall Street indexes are on pace for a bearish week ahead of a long weekend in the United States.
Recession fears have abated for the time being. The overall investor sentiment remains cautious, and the upside potential for stocks remains limited, with bearish risks continuing to persist. On the data front, Eurozone’s inflation surged 8.1% year-over-year in May, in line with the preliminary estimate. Consumer prices are confirmed at a record high above 8%, which implies that the ECB may have to act more aggressively sometime later this year.
ECB policymaker Knot said that the central bank could opt for several 50 basis points rate hikes in case the inflation situation in the Eurozone worsens. However, those remarks seem to have no impact on the common currency. EUR/USD is now back below the 1.0500 figure, shedding nearly 0.6% on the day.
Meanwhile, the greenback added to intraday gains after FOMC Chairman Powell confirmed the central bank’s commitment to returning inflation to 2%. He also highlighted that price stability contributes to confidence in the dollar as a store of value. While USD bulls refrain from more aggressive bets, for the time being, the broader outlook for the buck remains upbeat, with the 105.00 handle staying in the market focus.