Title: Euro rallies as growth hopes dent dollar demand

May 23, 2022 04:47AM ET

By: AnalysisWatch

The euro rallied Monday as investors sold the dollar on hopes that easing restrictions in China could boost global growth.

A calmer mood in stock markets in early European trading also pressured the dollar, which had fallen sharply last week but has been investors' currency of choice this year as risk assets plunged and worries about the economy and inflation grew.

The Australian dollar, which initially reacted cautiously to the expected victory of the center-left Labor Party in the weekend's national election, went up nearly 1%.

Sterling went up 0.5%, while the Norwegian krone also did well as the dollar's sell-off that began last week continued on Monday.

The euro rose 0.3% to $1.0602 last week, following a 1.5% gain the previous week and moving away from the multi-year low of $1.0349 reached earlier this month. The Japanese yen also benefited from the dollar's selling, rising to 127.66 yen per dollar.

The U.S. dollar index, which had risen about 16% in the 12 months to mid-May to a two-decade high, fell 0.3% to 102.6.

Sentiment in China was also positive. Shanghai is coming out of lockdown, and an unexpectedly large rate cut in China last week was seen as a signal that authorities would provide support.

The yuan posted its best performance since late 2020 last week, and in offshore markets it rose to 6.6555 per dollar on Monday, its highest level since early May.

Geopolitics is also in focus in Asia this week as U.S. President Joe Biden tours the region to promote greater U.S. economic engagement and push back against China's influence.

Commodity-linked currencies performed well. The Norwegian krone increased by half a percent against the euro, while the Canadian dollar increased by the same amount to C $1.2789.