Title: Dollar Up, Improving Risk Sentiment Boosts Euro and Pound

May 18, 2022 01:29AM ET

By: AnalysisWatch

The dollar strengthened in Asia on Wednesday morning. Overnight gains in early trading supported the euro and sterling. This was helped by strong UK labour market data and a general improvement in investor sentiment thanks to positive US retail sales data and hopes that China will ease COVID-19 restrictions.

The U.S. dollar index, which tracks the greenback against a basket of other currencies, rose 0.07% to 103.25 points by 1:22 a.m. EDT.

The USD/JPY currency pair fell 0.15% to 129.19.

The AUD/USD pair fell 0.07% to 0.7024, while the NZD/USD pair rose 0.06% to 0.6365.

The USD/CNY pair rose 0.16% to 6.7488, while the GBP/USD pair fell 0.03% to 1.2486.

The single currency was trading at $1.0563 in early Asian trade after rising 1.1% overnight, its biggest percentage gain since March. The pound edged up 1.4% to $1.2501 after rising 1.4% overnight, posting its best day since late 2020 after the U.K. unemployment rate fell to a 48-year low.

The gains sent the dollar index to its lowest level in almost two weeks.

Improved risk sentiment was reflected in a jump in equity prices overnight, with US Treasury yields trending higher and recently hitting 2.9878%. Higher US yields also ended the yen's recent small rally as the Japanese currency is sensitive to higher US interest rates.

Federal Reserve Chairman Jerome Powell told the Wall Street Journal at an event on Tuesday that the Fed will tighten monetary policy until there are clear signs of slowing inflation.

Meanwhile, the riskier Australian dollar was generally in an uptrend, helped by improving risk sentiment, and gained 0.8% on Tuesday. It was also supported by the minutes of the Reserve Bank of Australia's latest meeting released on Tuesday, which indicated that the central bank will raise interest rates again at its June 2022 meeting.