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Title: Dollar Edges Lower; Remains Near Record Levels on Safe Haven Flows

Jul 04, 2022 03:06AM ET

By: AnalysisWatch

The US dollar edged lower in early European trade on Monday, but remained in demand as a safe haven on concerns about slowing global growth, while a US holiday is likely to limit volatility.

At 2:55 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, fell 0.1 percent to 104.810, not far below last month's two-decade high of 105.790.

The euro zone, Britain, Japan, South Korea, Australia and Canada, as well as the United States, are likely to fall into recession over the next 12 months, Nomura analysts said in a note, as central banks seeking to restore credibility in controlling inflation are likely to avoid tightening policy too much.

This view is supported by recent economic data. US consumer spending, for example, grew far less than expected in May, while the Atlanta Federal Reserve's much-watched GDPNow forecast for the second quarter slipped to an annualised minus 2.1%.

Nevertheless, Fed Chairman Jerome Powell last week reiterated the Fed's determination to tame runaway inflation.

Investors will be watching Friday's non-farm payrolls report closely to find out how the labour market is faring in light of the Fed's inflation/employment mandate, while Wednesday's minutes from the central bank's June meeting will shed light on how policymakers view the future path of interest rates.

The market has priced in a 75 basis point rate hike by the Fed this month after the Fed made such a move in June, the largest since 1994.

EUR/USD rose 0.1% to 1.0434, only slightly above May's five-year low of 1.0349, not helped by Germany reporting its first monthly trade deficit since 1991 after exports unexpectedly fell in May.

The €1bn ($1bn) deficit suggests that Germany's export-oriented economy is feeling the full impact of Russia's invasion of Ukraine and China's COVID-related lockdowns, as well as the associated damage to international supply chains.

GBP/USD traded 0.2% higher at 1.2114 after hitting a two-week low of 1.1976 on Friday, USD/JPY rose 0.1% to 135.37, while AUD/USD climbed 0.5% to 0.6849.

All but one of 26 economists expect the Reserve Bank of Australia to raise its benchmark interest rate by half a percentage point to 1.35% on Tuesday, to a level not seen since May 2019, according to a Bloomberg survey.

Dollar softens slightly, stays near record levels on safe-haven inflows

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