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  • Writer's pictureanalysiswatch

Title: Dollar pulled from perch as focus turns to growth

May 17, 2022 02:40AM ET

By: AnalysisWatch

The dollar weakened against the other major currencies for a third straight day on Tuesday, curbing a long rally as investors withdrew funds and reduced bets on U.S. rate hikes, leading to further gains.

The dollar's breather pushed the Dollar Index back to 104.169, about 0.8% low last week's two-decade high of 105.010.

He still believes the dollar will continue to find support as the driver of gains shifts. However, it has calmed recently as there is no new case for sharp rate hikes and longer-term U.S. yields have fallen on recession fears.

The dollar remains above parity against the Swiss franc and is leading the way in emerging Asia, where rising food prices are likely to put pressure on regional economies.

The dollar hit a new record high against the Indian rupee on Tuesday, reaching its highest level against the Indonesian rupiah since 2020.

"The dollar/yuan has been a key driver for the G10 currencies," said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

He added that a pause in its slide, as well as a calming of volatility in the broader markets, has halted dollar gains for now.

Tuesday's appearances by a handful of Federal Reserve speakers, including Chairman Jerome Powell at 2 p.m. ET, will be closely watched for clues as to whether near-term interest rate expectations could become even more aggressive.

Futures markets expect back-to-back 50 basis point hikes in June and July and for the U.S. federal funds rate to reach 2.75% by year-end. However, expectations are growing that other central banks will follow suit.

The spread between German and U.S. 10-year real yields has narrowed by more than 30 basis points this month, and central banks in the U.K. and Australia have raised rates.

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