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Dollar Drops, But Still in Range of 20-Year Tops

The dollar slipped on Friday as equities rally contributed to the risk-on mood, but was still poised for a sixth straight week of gains as investors remained concerned about slowing global growth and the Federal Reserve's policy tilting the United States.

High inflation and the Fed's path of rate hikes have fueled fears of a policy error that could lead to a recession or a stagflation scenario of slowing growth and high prices. This week's readings show some signs that inflation is starting to recede, albeit at a slow pace.

The dollar showed little reaction on Friday to data showing US import prices unexpectedly flat in April as falling oil costs offset gains in food and other products, a further sign that inflation may have peaked.

Other data from the University of Michigan showed a preliminary reading of consumer sentiment for early May worsened to its lowest level since August 2011 as concerns about inflation persisted.

Even with recent inflation readings, Cleveland Fed President Loretta Mester said it would need to move lower for "a few months" before the Fed can safely conclude that it has peaked, and she would be prepared to consider a faster rate hike by the Fed. September.

 

Dollar Weakens, Investors Flock to Safe Haven

The issue is where do we look for recovery, and how are we going to negotiate what appears to be going downhill. You have a Fed that isn't ready to cut rates and help the economy – you have a Fed that raises rates, that's a very unusual situation.

But the greenback weakened as equities strengthened after a sharp decline that recently put the S&P 500 on the cusp of bear market confirmation as investors look for signs the stock has bottomed out.

Investors have flocked to the safe haven amid concerns about the Fed's ability to contain inflation without causing a recession, along with concerns about slowing growth arising from the Ukraine crisis and the economic impact of China's zero-COVID-19 policies amid rising infections.

The dollar index was down 0.143% at 104.610 against a basket of major currencies after earlier hitting 105.01, its highest since December 2002. The US currency is on track for its sixth straight week of gains, the longest weekly record this year, and has gained more than 9%.

The single currency is on track for its fifth weekly decline in six and has been hurt by both fears resulting from Russia's invasion of Ukraine hindering the economy and the dollar's rally.

While the European Central Bank is widely anticipated to start raising interest rates in July, it is expected to adopt a less aggressive pace than the Fed.

Other Currencies and Cryptos Against the Dollar

The Japanese yen was down 0.76% versus the greenback at 129.32 per dollar, while the Sterling was last trading at $1.2227, up 0.23% on the day.

The safe-haven yen is also starting to gain ground against the greenback and is on track for its first weekly gain against the dollar after nine straight weeks of declines.

In cryptocurrencies, Bitcoin was last up 3.95% to $29,670.89. Bitcoin earlier this week dropped to its lowest level since December 2020 as the cryptocurrency has been rocked by the collapse of TerraUSD, the so-called stable coin.

The euro rose 0.18% to $1.0398, reversing course after slumping to 1.0348, its lowest since Jan 3, 2017. The US Federal Reserve raised interest rates to 1% last week to tame inflation, the biggest increase in 22 years.

However, Fed Chair Jerome Powell said Thursday that the central bank's battle to cool inflation will "include some pain" as the impact of higher interest rates is felt, calling stable prices the "base" of the economy. He added that worse results would accelerate prices.

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