Dollar Up, Euro Down Over Potential ECB hikes and Slower U.S. Pace
2022.05.31 08:41
By Gina Lee
Investing.com – The dollar was up on Tuesday morning in Asia. The euro gave up some of its recent gains but was still set for its best month in a year, with markets repositioning in anticipation of interest rate hikes in Europe and potentially slower U.S. rate hikes.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies was up 0.31% to 101.39 by 1:32 AM ET (5:32 AM GMT).
The USD/JPY pair was up 0.30% to 127.94. The yen was softer on the day but set for its strongest month since July 2021.
The AUD/USD pair inched down 0.04% to 0.7193 and the NZD/USD pair edged down 0.14% to 0.6545.
The USD/CNY pair inched down 0.05% to 6.6580. Chinese data released earlier in the day showed that May 2022’s manufacturing purchasing managers’ index (PMI) was 49.6 and the non-manufacturing PMI was 47.8.
The GBP/USD pair was down 0.24% to 1.2620, with the pound set for a monthly gain of 0.5% versus the dollar, its first monthly rise in 2022.
The euro was at $1.0745, down 0.3% after hitting a five-week high of $1.0786 overnight.
German inflation rose to its highest level in nearly half a century in May, according to Monday’s data, strengthening the case for the European Central Bank to hike interest rates more aggressively. The central bank is expected to start to raise rates in July 2022 for the first time since the COVID-19 pandemic began in 2020.
With the Eurozone consumer price index (CPI) due later in the day, the German data could mean that the CPI will be above expectations as well, according to CBA analysts.
Additionally, “there are a number of ECB officials speaking tonight, no doubt talking up the prospects of higher European interest rates,” they said in a note.
The euro is also set for a 2.2% gain in May 2022, its biggest monthly rise in a year, and the dollar index fell to a five-week low of 101.29 overnight.
“The focus has shifted from higher inflation and more rate hikes to worries about whether Fed tightening has put pressure on the economy, and that has caused the dollar to weaken over the last few weeks,” Saxo Markets Hong Kong market strategist Redmond Wong told Reuters.
However, he added that it remains uncertain whether the U.S. Federal Reserve would pivot away from its aggressive pace of tightening and pointed to hawkish remarks overnight from Fed governor Christopher Waller, noting that “this trend of a weaker dollar could reverse”.
Rebounding sentiment towards riskier assets and currencies partly caused by an easing of lockdowns in the Chinese city of Shanghai has also weighed on the safe-haven greenback recently, according to other investors.
The European Union also agreed in principle on Monday to cut most oil imports from Russia by the end of 2022, giving oil and commodity currencies a boost.
