Dollar starts week on strong footing on firm safe-haven bid

May 16, 2022: The dollar started the week just off a 20-year high against peers on Monday, as investors sought safety due to fears about global growth while cryptocurrency markets appeared to find some stability after last week's turmoil.

The dollar index was at 104.54, having briefly crossed the 105 level on Friday, its highest since December 2002, after six successive weeks of gains.

Investors have flocked to the safe-haven currency on concerns about the U.S. Federal Reserve's ability to dampen inflation without causing a recession, along with worries about slowing growth arising from the Ukraine crisis and the economic effects of China's zero-COVID-19 policy.

"Broad USD strength is being supported by a mounting global growth concern," said Barclays analysts.

They said events to watch this week included U.S. retail and production data due Tuesday, as well as public remarks from several Fed officials.

"Focus will be on any potential reiteration/pushback on the notion that 75-basis point rate hikes are off the table for now."

Markets are pricing in 50 basis point hikes at the Fed's next two meetings, according to CME's Fed Watch tool, but with the possibility of larger increases.

Chinese retail and production data due later on Monday are also top of the agenda.

"A weaker growth outlook in China is likely to keep commodity G10 currencies under pressure and the USD supported," said Barclays.

The euro started the week languishing near its lowest level since early 2017, suffering due to the strong dollar and because of the European economy's exposure to the Ukraine conflict.

The single currency was at $1.0398 on Monday morning, only just above the $1.0354 level it hit on Thursday, its lowest since early 2017.

There are also plenty of speeches from top European Central Bank officials this week for investors to watch.

Sterling, which has suffered along with the euro, was at $1.2256 on Monday, having dropped as low as $1.2156 last week, hurt by softer than expected first-quarter GDP figures.

In the coming week, Britain has labor market data, inflation, and consumer confidence data.

The Japanese yen was a little softer on Monday morning at 129.43 yen per dollar. Last week it managed its first week of gains since early March, as growth fears meant U.S. Treasury yields paused their march higher.

With yields pinned down in Japan, the yen is vulnerable to higher U.S. yields.

Crypto markets, which trade around the clock, had a quiet weekend after turmoil last week driven by TerraUSD, a so-called stablecoin, breaking its dollar peg.

Bitcoin was trading at around $31,000 has dropped to $21,400 on Thursday, its lowest since December 2020.

Reuters