Dollar rally stalls, rivals pursue tentative comeback

THE dollar eased for a third straight day on Tuesday as a jump in sentiment across global markets encouraged investors to reinvest in riskier currencies and trim bets on the safe haven greenback which hit a two-decade high last week.

A hawkish comment from Dutch central bank chief Klaas Knot helped the euro jump back above US$1.05 for the first time since Thursday, brushing off fears the common currency was on course for imminent parity with the dollar.

Knot said that not only was the European Central Bank set to hike rates by 25 basis points in July, the central bank was also ready to consider a bigger rise if inflation proved higher than expected.

Following Knot’s comments, the euro swiftly more than doubled its gains to more than 1 per cent, to US$1.0542.

The currency had already benefited from ECB policymaker Francois Villeroy de Galhau arguing on Monday that a weak euro could threaten price stability in the currency bloc.

Worries that escalating tensions with Russia could lead to a gas embargo, a recession in the euro zone and prevent the ECB from lifting interest rates, have weighed on the common currency’s prospects.

Sterling also took advantage of the softer dollar to jump 1.4 per cent to its highest level since May 5 after strong labour market data reinforced expectations that the Bank of England would continue to raise rates to fight inflation.

The Australian dollar also did its part in adding pressure to the dollar.

It rose 0.85 per cent to US$0.7031, recovering further from a two-year low touched last week, and could get an extra boost from interest rate expectations if wage data beats expectations on Wednesday.

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Dollar firm at 2-decade highs as Aussie, yuan sink

Australia’s central bank considered a sharper rise in interest rates at its May meeting, minutes published on Tuesday showed, in a heavy hint it will hike again in June.

The Chinese offshore yuan gained 0.9 per cent after a steep slide that has knocked it about 7 per cent lower since mid-April.

Shanghai logged three consecutive days with no new Covid-19 cases outside quarantine zones on Tuesday, a milestone that in other cities has signalled the beginning of lifting restrictions.

The US currency’s breather pushed the dollar index down 0.79 per cent to 103.35, about 1.5 per cent below last week’s two-decade high of 105.010.

For all the short-term headwinds, the greenback’s strength is widely expected to remain a driving force in 2022 as the US Federal Reserve implements a new cycle of monetary tightening.

Fed speakers on Tuesday, including Chairman Jerome Powell at 1800 GMT, will be closely watched for any clues about whether near-term rate expectations could become even more aggressive. REUTERS