TOKYO – The U.S. dollar is heading for its worst week since the beginning of February against major peers on Friday, with Treasury yields and fatigue declines after a 10% rise in the currency, 14-week.
The dollar index, which measures it against six major rivals, was down 1.5% for the week at 102.96, to snap a six-week winning streak. One week ago, it rose to a high of 105.01 from January 2003.
Even as global stocks continue to slide amid rising risks from aggressive fiscal austerity led by the Federal Reserve and China’s tough lockdown to stem a COVID-19 outbreak, the dollar’s appeal as an investor has been sheltered by declining U.S. yields as an investor. The Treasury has rushed to secure the bonds.
The benchmark 10-year Treasury yield fell to a three-week low of 2.772% overnight, from a 3 1/2-year high above 3.2% earlier this month.
“The dollar was ripe for a pullback,” Edward Moya, OANDA’s senior analyst, wrote in a note to clients. “Weaknesses across the board may continue for a while longer.”
Other safe-haven currencies rallied overnight as a key global equity index plunged into its seventh week, the longest ever.
With the dollar falling 1.16% to 127.785 yen since last Friday, the yen is heading for a second-straight weekly advance.
The Swiss franc has moved to its best week since March 2020, with the dollar falling 2.9% over the last trading period at 0.97265 francs.
Concerns have been raised that the Fed and other central banks have strayed from the curve in tackling ultra-hot inflation, and that they will have to be more aggressive in tightening policy, resulting in pain in the economy.
The war in Ukraine has darkened the outlook for commodity-driven inflation, showing no signs of abating.
China’s path from the coronavirus lockdown has also remained unclear, threatening further global price pressures, and even Shanghai is preparing to allow the resumption of more business activities in the Zero-Cavid region since early June.
The Australian and New Zealand dollars have received some support from signs of re-opening in their main trading partners, despite the risk-off tone in the equity market.
Aussie gained 1.4% this week and Kiwi added 1.49%.
The Australian currency fell 0.23% to 70 0.7031 on Friday, as the US dollar bounced slightly after gaining 1.33% in Australia on Thursday.
Carol Kong, an analyst at the Commonwealth Bank of Australia, wrote in a note that “China’s drastic lockdowns are the main reason why the AUD has moved so far away from the implicit level.”
“We are confident that the AUD can recover strongly once the lockdowns are relaxed due to China’s commitment to increase infrastructure spending.”
The New Zealand Kiwi, though holding on to the previous day’s 1.41% jump, is holding slightly higher at 63 0.63845. The Reserve Bank of New Zealand sets policy next Wednesday, with expectations of a further half-point increase in key rates.
The euro fell 0.07% to 0 1.05735 on Friday, but was still on its way to a 1.55% weekly gain.
Sterling fell 0.07% to $ 1.24615, but rose 1.66% for the week, its best performance since late 2020.
Westpac analysts have warned not to count the dollars, even if its rally “loses some of its vitality”.
It is too early to call a long-term peak between volatile world market conditions and a strong Fed, ”analysts at the Australian Bank wrote in a research note, recommending buying dips out of 102 and targeting 105 multi-week.
(Reporting by Kevin Buckland; Editing by Robert Bircel)