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Title: Dollar Edges Lower; Risk Sentiment Remains Fragile

May 19, 2022 03:04AM ET

By: AnalysisWatch

The U.S. dollar fell Thursday in the early hours of European trade, giving up some of the previous session's substantial gains, although the safe-haven asset remains in demand with fragile risk sentiment.

The Dollar Index, which measures the value of the US dollar against a basket of six other currencies, was down 0.1 percent at 103.770 at 3:05 a.m. ET, after rising 0.6 percent the previous session.

EUR/USD rose 0.2 percent to 1.0487 after Wednesday's 0.8 percent plunge; GBP/USD rose 0.2 percent to 1.2367, after a 1.2 percent drop overnight on the back of a surge in British inflation, which fueled fears of a sharp economic slowdown; and AUD/USD rose 0.6 percent to 0.6992, after a 1.1 percent drop overnight.

In contrast, USD/JPY rose 0.3 percent to 128.57, with the yen safe-haven asset slipping during Thursday's session.

Despite the cooling of these safe haven assets after the recent rally, sentiment remains fragile due to growing fears that aggressive tightening by the Federal Reserve and other global central banks could stifle growth.

Fed Chairman Jerome Powell had said earlier in the week that the U.S. central bank would push interest rates higher to stem soaring inflation, and weak U.S. housing data on Wednesday fueled fears of a slowdown.

ING analysts said in a note that Powell's "comments were quite signal-relevant, as he firmly reiterated the Fed's determination to bring inflation down in a sustainable manner, even raising the neutral rate if necessary." "The idea of aggressive tightening by the Fed continues to counter a sustained bearish trend in the dollar."

Attention The focus on Thursday will shift to the release of the minutes of the European Central Bank's latest meeting, expected later in the session, with investors looking for clues about a potential timetable for monetary policy tightening.

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