Dollar Up, but Set for Worst Week Since Feb 2022 as Headwinds Remain

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By Gina Lee

Investing.com – The dollar was up on Friday morning in Asia, headed for its worst week since early February 2022 as U.S. Treasury yields retreat and fatigue after the greenback's 10%, 14-week surge.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was up 0.35% to 102.94 by 11:45 PM ET (3:45 AM GMT). The index was down 1.5% for the week and is set to end a six-week winning run, after climbing to the highest level since January 2003 at 105.01 a week earlier.

The USD/JPY pair inched up 0.03% to 127.84.

The AUD/USD pair was down 0.45% to 0.7015 and the NZD/USD pair inched down 0.11% to 0.6371.

The USD/CNY pair was up 0.22% to 0.67282 while the GBP/USD pair inched down 0.10% to 1.2447

However, global shares continue their fall as aggressive monetary tightening, led by the U.S. Federal Reserve, and China's COVID-19 continue to pose challenges to economic growth. The dollar's safe-haven appeal was also eclipsed by a fall in U.S. yields as investors turned to Treasury bonds.

The benchmark 10-year Treasury yield fell overnight to a more than three-week low of 2.772%, from a three-and-a-half-year high of over 3.2% earlier in the month.

"The dollar was ripe for a pullback," OANDA senior analyst Edward Moya said in a note. "Across the board weakness might continue a while longer."

The Japanese yen was set for a second consecutive weekly advance, with the dollar falling 1.16% to 127.785 yen since the previous Friday.

Concerns are now growing that the Fed and other central banks have fallen behind in curbing inflation and will need to be ever more aggressive in tightening policy. The ongoing war in Ukraine, precipitated by the Russian invasion on Feb. 24, is also darkening the outlook for commodity price-driven inflation.

In Asia-Pacific, China's path out of its COVID-19 lockdowns remains unclear, even as the city of Shanghai prepares to allow more businesses in zero-COVID areas to resume normal operations from the beginning of June 2022.

Signs of a re-opening in China lent some support to the Antipodean currencies. The Australian dollar fell on Friday, with its U.S. counterpart bouncing a bit after the Aussie's 1.33% surge on Thursday.

"China's strict lockdowns are the main reason why the Australian dollar has diverged so much from the level implied by its fundamentals," Commonwealth Bank Of Australia analyst Carol Kong said in a note.

"We remain confident the Aussie can rebound strongly once lockdowns are eased because of China’s commitment to ramp up infrastructure spending."

The Reserve Bank of New Zealand will also hand down its policy decision the following Wednesday.

Westpac analysts warned not to count the dollar out, even if its rally was "losing some of its vitality".

"It’s still far too early to call a long-term peak, amid unsettled global market conditions and a resolute Fed," they said in a research note, recommending buying on dips in the 102s and targeting 105 multi-week.