Title: Dollar Weakens; Heading for Monthly Drop on Rising Risk Sentiment

May 30, 2022 02:54AM ET

By: AnalysisWatch

On Monday, the US dollar fell in early European trading, heading for its first monthly decline in five months, as a calmer risk environment and heightened expectations of a pause in the Federal Reserve's tightening monetary policy cycle took their toll.

In addition, EUR/USD rose 0.2% to 1.0753, GBP/USD gained 0.2% to 1.2637, maintaining last week's large gains, while risk-sensitive AUD/USD rose 0.3% to 0.7184 and NZD/USD jumped 0.2% to 0.6549, both pairs near three-week highs.

Volatility is likely to be subdued on Monday with US stock and bond markets closed for the Memorial Day holiday, but supporting risk appetite comes positive news from China on the easing of COVID-19 measures.

On Sunday, Shanghai said trade restrictions would be lifted from June 1, while Beijing partially reopened public transport as well as some shopping malls.

USD/CNY fell 0.7% to 6.6507 as a result, with the yuan supported by progress in breaking out of viral blockades.

Also boosting broader risk sentiment against the dollar were growing expectations that the Federal Reserve, after aggressively raising interest rates over the next two months, might then pause its hiking cycle to prevent the economy from entering recession.

Investors will have a chance to hear from several Fed policymakers over the next week, starting with Fed Governor Christopher Waller on Monday, but there is also a wealth of US economic data to study over the week, culminating in the much-anticipated monthly employment report.

Friday's nonfarm payrolls data for May is expected to show that the labor market remains strong, with economists expecting the economy to have added 320,000 jobs in May, while the unemployment rate should fall to 3.5%.

In Europe, consumer inflation data from Germany and Spain will be released on Monday and will be closely watched ahead of Tuesday's release of the latest flash estimate for eurozone inflation.

In addition, EU governments will later begin a two-day meeting to discuss a sixth package of sanctions against Russia as punishment for its invasion of Ukraine, including a potential ban on Russian oil.

Dollar weakens; heads for monthly decline amid rising risk sentiment