Title: Dollar pares weekly loss, Fed looms large after ECB hike

Jul 22, 2022 02:20AM ET

By: AnalysisWatch

The dollar recovered strongly on Friday, but it remained on track for its biggest weekly loss since late May, as weak economic data in the United States led to some reductions in bets on the size of the Federal Reserve's interest rate hike expected next week.

The euro fell further from a more than two-week high reached on Thursday as the European Central Bank raised borrowing costs for the first time since 2011 but left its key interest rate unchanged and provided few details on a new tool to curb peripheral bond yields.

The dollar index, which measures the greenback against six major currencies, with the euro the most heavily weighted, rose 0.35% to 106.98 after falling 0.36% on Thursday.

For the week, it is down 0.95%, the biggest drop since May 29 and the first losing week in four years.

Europe's single currency fell 0.44% to $1.0187, dropping further from its high of $1.0279 on Thursday, after the ECB raised interest rates by half a percentage point.

Although the new bond-buying program, known as the transmission protection instrument, would reportedly be triggered by the sell-off in Italian debt following the collapse of the government there, sources told Reuters news agency that the ECB does not expect to use it anytime soon.

The dollar came under additional pressure overnight, and U.S. Treasury yields also slipped after data showed a slump in industrial activity and a rise in jobless claims—signs that the economy is already feeling the effects of the Fed's aggressive tightening and may have less to do in the future.

The dollar recovered 0.43% to 137.925 yen after falling 0.67% overnight, moving further away from last week's 24-year high of 139.38 yen. Since last Friday, it has fallen 0.46%.