LONDON (Reuters) – Monday, investors sold dollars in hopes that easing restrictions in China would help growth around the world. This made the euro go up.
In early European trading, the calmer mood on stock markets also put pressure on the dollar. The dollar fell sharply last week, but it has been the go-to currency for investors this year when risk assets fell and worries about the economy and inflation rose.
All currencies that are sensitive to risk went up. The Australian dollar, which at first didn’t react much to the expected victory of the center-left Labor Party in national elections over the weekend, went up almost 1%.
As the dollar fell in value last week and into Monday, the value of the pound rose by 0.5% and the Norwegian crown also did well.
“For now, we think this is just a short-term change in the U.S. dollar. When we look at the main reasons why the dollar has been getting stronger over the past few months, we don’t think those reasons have changed much in the past week “said Lee Hardman, an analyst at MUFG.
“But in the very short term, there is a chance that this drop could last longer,” he said, pointing out that the increase in long dollar positions over the past few weeks makes the market vulnerable.
The euro went up by 0.3% to $1.0602. This is on top of a 1.5% gain from last week and a move away from the multi-year low of $1.0349 reached earlier this month. The selling of dollars helped the Japanese yen rise to 127.66 yen per dollar.
In the 12 months leading up to the middle of May, the U.S. dollar index rose about 16% to a high not seen in 20 years. However, it dropped 0.3 percent to 102.6.
The way people felt about China also helped. Shanghai is slowly getting out of lockdown, and last week’s big rate cut in China was seen as a sign that the government is going to help.
Last week was the best week for the yuan since late 2020. On Monday, the yuan was at its strongest level since early May on markets outside of China. [CNY/]
This week, geopolitics are also a big deal in Asia, where U.S. Vice President Joe Biden is touring the area to push for more U.S. involvement in the economy and to counter China’s influence.
Currencies that were tied to commodities did well. The Norwegian crown went up against the euro by half a percent, and the Canadian dollar went up by the same amount, to C$1.2789.
This year, the U.S. dollar has gone up a lot. But since people already expect the Federal Reserve to raise interest rates quickly, some analysts say it may be harder to make more gains from here on out.
Joe Capurso, a strategist at the Commonwealth Bank of Australia (OTC:CMWAY), said, “The dollar may be making a peak, given that Europe has been able to handle the energy shock well and that China’s lockdowns may be loosening.”
“Given the type of policy support, we expect investment to come back faster than consumer spending,” he said, adding that investment could help commodity currencies like the Australian and Canadian dollars as well as the yuan.
