Band Sinéad Carew
NEW YORK, May 16 (Reuters) – The U.S. dollar index was down on Monday after hitting a 20-year high last week as the global economy took center stage after weak economic data from China highlighted concerns over the prospects of a global slowdown.
Creating a risky mood on Monday, retail and factory activity in China fell sharply in April as widespread COVID-19 shutdowns confined workers and consumers to their homes. But Shanghai has set out plans for a return to more normal life from June 1.
Following the release of the data from China, Bipan Rai, head of FX strategy for North America at CIBC Capital Markets, said on Monday that trading was focused on macro data.
“It’s important to point out that the risks are to a stronger dollar and primarily that’s because if you look at the macroeconomic climate, the fundamentals don’t look good. From a risk perspective, that should still be supportive. the dollar against most currencies,” Rai said.
But he said the greenback was consolidating after its recent strength and more range-bound trading sessions were possible: “It makes sense for some period of consolidation before the next leg higher.”
Dollar trading may be muted partly because a lot of bad news has already factored in, but also because investors are waiting for events like the release of U.S. retail sales data and an appearance Fed Chairman Jerome Powell’s public hearing, both scheduled for Tuesday, according to Mazen Issa, senior FX strategist at TD Securities. [nL2N2X52F6]
Still, Issa said he doesn’t “believe we’re in a market where we’re going to see the dollar weaken… It’s going to take a lot to get investors out of the dollar.”
The euro was pulled back from earlier lows after European Central Bank policymaker Francois Villeroy de Galhau said the common currency’s weakness could threaten the ECB’s efforts to steer inflation towards its target .
The Australian dollar AUD=D3which is highly exposed to the Chinese economy, reversed course over the day and was the last to rise against the dollar after falling 0.9%.
The dollar index =USD was the last to go down 0.37% to 104.16, after briefly crossing the 105 level on Friday – its highest level since December 2002, following six successive weeks of gains. Weekly positioning data showed that investors had built up their long dollar bets.
euro EUR=EBS was standing 0.26% to $1.0438 but not far from last week’s low of $1.0354, its lowest level since early 2017. Analysts see $1.0340 as a crucial level of support for the euro.
HSBC strategists expect the euro to fall to parity against the dollar in the coming year. “Much lower growth and much higher inflation leaves the ECB facing one of the toughest policy challenges in the G10 (central banks),” they said.
Crypto markets, which trade around the clock, had a quiet weekend after last week’s turbulence caused by TerraUSD, a so-called stablecoin, which broke its peg to the dollar. A subsidiary of the company behind TerraUSD said it had spent most of its reserves trying to defend its dollar peg and would use the rest to try to compensate some users who had lost out.
Bitcoin BTC=BTSPwas last trading at around $29,881, down more than 4%, after dropping to $25,400 on Thursday, its lowest rating since December 2020.
Currency rates at 3:03 p.m. (7:03 p.m. GMT)
Closing of the previous session
Percentage change since the beginning of the year
New Zealand Dollar/Dollar
Global exchange rateshttps://tmsnrt.rs/2RBWI5E
Weekly FX Positionshttps://tmsnrt.rs/3yBw31e
(Additional reporting by Saikat Chatterjee in London, Alun John in Hong Kong; Editing by Barbara Lewis, Paul Simao and Chizu Nomiyama)
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