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Dollar Slips; Risk Sentiment on the Rise

Forex May 23, 2022 02:58AM ET
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© Reuters.

By Peter Nurse

Investing.com - The U.S. dollar weakened in early European trade Monday, with risk sentiment boosted by hopes that loosening lockdowns in China can help global growth.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% lower to 102.660, falling back from a two-decade high seen in the middle of May.

The safe haven dollar appears to have lost momentum with risk sentiment on the rise, boosted by the news that Shanghai, China’s commercial hub, is set to lift its city-wide lockdown and return to more normal life from June 1.

Additionally, Beijing authorized an unexpectedly large rate cut last week, which has been taken as a signal that the Chinese authorities are going to provide support to the world’s second largest economy.

“DXY [the dollar index] could correct a little lower to 102.30, but we see this as bull market consolidation, rather than top-building activity,” said analysts at ING, in a note. “Not until the Fed pours cold water on tightening expectations should the dollar build a top.”

USD/CNY fell 0.5% to 6.6592, with the pair continuing the slip after the yuan had its best week since late 2020 last week.

The risk-sensitive Australian and New Zealand dollars climbed to their highest levels in several weeks, with AUD/USD up 1.1% to 0.7111 and NZD/USD up 1.2% to 0.6467. 

Australia elected a new government on Saturday, but this is not expected to impact the Reserve Bank of Australia’s thinking regarding monetary policy. The Reserve Bank of New Zealand is expected to raise its benchmark cash rate by 50 basis points on Wednesday.

EUR/USD rose 0.5% to 1.0608, ahead of the release of the key German Ifo business climate index for May. 

GBP/USD climbed 0.7% to 1.2573, with the important U.K. housing market still showing strength. Asking prices for U.K. homes rose to a new record for a fourth straight month, according to data from real estate company Rightmove, rising 2.1% in May, the highest for the month since 2014. 

Attention later this week will turn to the release on Wednesday of the minutes of the last Federal Reserve, with traders looking for clues about whether the U.S. central bank can curb the most aggressive inflation in four decades without tipping the economy into recession.

The Fed has already hiked interest rates by 75 basis points since March and markets are pricing in 50 basis point rate hikes in June and July.

Dollar Slips; Risk Sentiment on the Rise
 

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Comments (3)
Todd Gray
Todd Gray May 24, 2022 8:46PM ET
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Buffett just bought tons of shares. would Berkshire do that if the market was about to crash?
Matthew Lenco
Matthew Lenco May 23, 2022 10:12AM ET
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“The safe haven dollar appears to have lost momentum with risk sentiment on the rise, boosted by the news that Shanghai, China’s commercial hub, is set to lift its city-wide lockdown and return to more normal life from June 1.”You really need to write a retraction or elaborate on thus wild idea.
Todd Gray
Todd Gray May 23, 2022 10:12AM ET
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the risk of holding dollars long is rising. that's all it means.
Wilks Campbell
Wilks Campbell May 23, 2022 5:08AM ET
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A lot of non senses. The better sentiment is just the short sellers closed some positions on last Friday close and wait and see on Monday. The resulting missed the bear territory for SNP is being interpreted as hopes and reason for better sentiment, it is naive! The only valid sentiment boost are more likely from UK sudden retail jump, housing price continue up in price, some better earning beats of some European stocks , plus the newly elected Australia labour party , who is more inclined to business with CCP might also raised some business sentiment, but actually that is a bad news for the world !
 
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