Title: Dollar Edges Higher, Lifted by Safe Haven Demand

Jul 01, 2022 03:00AM ET

By: AnalysisWatch

The U.S. dollar edged higher in early European trading on Friday, trading near a one-year high as central banks fight inflation at the expense of economic growth and demand for safe havens rises.

At 03:00 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 104.688 after hitting a 20-year high of 105.79 in mid-June.

The dollar saw some weakness on Thursday after U.S. consumer spending rose far less than expected in May, causing 10-year Treasury bond yields to fall as low as 2.94%, setting the stage for the biggest weekly decline in seven weeks.

This came after Fed Chairman Jerome Powell's comments earlier in the week that the risk of higher interest rates hurting the economy was less important than restoring price stability.

However, the dollar quickly rebounded as investors dumped growth-sensitive assets amid fears that a slowdown in the U.S. would sweep the entire world.

The EUR/USD fell 0.3% to 1.0453, with the war between Russia and Ukraine adding to inflation and growth concerns in Europe.

GBP/USD fell 0.4% to 1.2131 after Bank of England Governor Andrew Bailey noted earlier in the week that the UK economy was beginning to slow, while inflation was expected to continue to rise.

The USD/JPY fell 0.6% to 134.97, with the safe-haven Japanese yen also seeing support. The risk-sensitive AUD/USD fell 1.1% to 0.6821, while USD/CNY rose 0.1% to 6.7078 after China's manufacturing activity expanded at its fastest pace in 13 months in June. The Caixin/Markit manufacturing purchasing managers' index rose to 51.7 in June, driven by the lifting of COVID freezes.