Forex News

The dollar is getting weaker and is on its way to a monthly drop due to rising risk sentiment.

 The U.S. dollar fell in early European trading on Monday. This will be the first monthly drop for the dollar in five months, as a calmer risk environment and higher expectations of a pause in the Fed’s tightening cycle weighed on it.

At 2:55 AM ET (06:55 GMT), the Dollar Index, which compares the dollar to a basket of six other currencies, was down 0.2% to 101.510. It has been steadily falling since reaching a 20-year high of 105.010 in May.

Also, EUR/USD rose 0.2 percent to 1.0753 and GBP/USD rose 0.2 percent to 1.2637, maintaining last week’s big gains. The risk-sensitive AUD/USD increased by 0.3 percent to 0.7184, while the NZD/USD increased by 0.2 percent to 0.6549, both near three-week highs.

Because the US stock and bond markets are closed for the Memorial Day holiday, volatility is expected to be low on Monday. However, good news from China about the easing of COVID-19 measures has helped the risk appetite.

On Sunday, Shanghai said that business restrictions would be lifted on June 1, while Beijing reopened some public transportation and malls.

As a result, USD/CNY fell by 0.7% to 6.6507, and the yuan gained strength as virus lockdowns were lifted.

On Tuesday and Wednesday, China will release forward-looking manufacturing and non-manufacturing PMIs. These will be looked at to find out how much the COVID restrictions have slowed down the world’s second-largest economy.

Wider expectations that the Federal Reserve might stop raising interest rates after it raises them quickly over the next two months to keep the economy from falling into a recession have also made people more willing to take risks, which hurt the dollar.

During the next week, investors will be able to hear from several Fed policymakers, starting with Fed Governor Christopher Waller on Monday evening. They will also be able to look at a lot of U.S. economic data, including the widely watched monthly jobs report.

The May nonfarm payrolls report, which comes out on Friday, is expected to show that the job market is still strong. Economists predict that the economy added 320,000 jobs in May and that the unemployment rate went down to 3.5 percent.

In Europe, German and Spanish consumer inflation data are due out later on Monday. These numbers will be carefully looked at before the latest Eurozone inflation flash estimate comes out on Tuesday.

Also, later in the session, the EU governments will start a two-day meeting to talk about a sixth package of sanctions against Russia as punishment for its invasion of Ukraine, which could include banning Russian oil.

In a note, analysts at ING said, “We think that a combination of a material improvement in the global risk environment and a further widening of short-term rate differentials that is bad for the USD is unlikely.” Because of this, they expect the (now less overbought) dollar to find a floor soon.

“This means that the EUR/USD is more likely to drop below 1.0700 in the next few days than to go up again.”

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