The euro rose on Thursday as investors valued the European Central Bank’s aggressive near-term tightening opportunities, while the safe-haven dollar took a breather after significant gains in previous sessions.
The money market is currently pricing the ECB rate hike at around 105 basis points (bps) from around 95 bps on Tuesday before ECB official Klaas Knot signaled a 50-basis-point rate hike in July.
Meanwhile, US money markets are still offering a discount of about 200 bps to the Fed rate hike by December 2022.
Tracking Wall Street’s worst days since mid-2020, the risk appetite in the currency market is fragile because warnings from the world’s largest retailers reflect how tough inflation is.
However, some analysts have a positive view of the global economy and the prospects for easing sanctions in China.
On Thursday, for the first time in almost two months, more Shanghai residents were given the freedom to shop for groceries as authorities made further plans to exit the city-wide COVID-19 lockdown more completely.
“We are relatively bullish on risk currencies against the US dollar, including both the euro and sterling, because we think market concerns are too high for global growth,” said Matthew Ryan, senior market analyst at Ibari.
He added, “When we reach a stage where we can see a significant return to where China is physically beginning to release its cowardly restrictions.” “We think the world economy will probably be a little better than some economists expect this year.”
The dollar index, which tracks the greenback against six major equivalents, fell 0.3% to 103.5 after jumping 0.55% on Wednesday, ending a three-day losing streak.
“We argue that a turning point (for the US dollar after recent gains) is near,” George Saravellos, Deutsche Bank’s global head of foreign exchange, said in a research note.
“Because we are now at a stage where further deterioration in the financial situation undermines the Fed’s expectations, while there is still significantly more tightening of pricing for the rest of the world, especially Europe,” he added.
The euro rose 0.3% against the dollar to 1.0488.
The Swiss franc rose 1% against the euro and the dollar after Swiss National Bank President Thomas Jordan indicated on Wednesday that the SNB was ready to work if inflationary pressures continued.
The SNB is still stuck with its ultra-loose policy.
The Swiss franc is the 2-week high against the greenback and the 3-week high against the single currency, at 0.9751 and 1.0227, respectively.
The Japanese yen, which lost ground against the dollar in March and April, has recently had a rangebound.
It rose 0.4% to 127.6 on Thursday.
On Tuesday, the Bank of Japan said it intended to stick to its dual position and maintain the current monetary stimulus for sustainable growth in prices.
Ebury’s Ryan sees a possible rebound in the yen, but due to differences in monetary policy between the Bank of Japan and the Fed, it has a bearish outlook in the medium term.
“As long as concerns about inflation and a possible economic downturn predominate in the narrative, the yen may return as a desirable, or at least a desirable, safe haven for currency traders,” he said.
Strong economic data support their currencies in anticipation of fiscal tightening in Australia and Canada.
Bitcoin fell nearly 1% and last traded at, 28,884. Ether rose 0.5% but is still below $ 2,000. (Reporting by Stefano Rebaudo; Editing by Angus Maxwan)