Will the Demand for Safe Havens Keep the Dollar Up?

Will the Demand for Safe Havens Keep the Dollar Up?

As central banks fight inflation at the price of economic development, the U.S. dollar increased in early European trade on Friday, trading near the year’s highs.

The Dollar Index (DXY) compares the dollar’s value to a basket of six other currencies. It reached a 20-year high of 105.79 in mid-June. DXY was trading 0.2 percent higher at 104.688 as of 3 AM ET (0700 GMT). After U.S. consumer spending expanded far less than anticipated in May, the dollar significantly weakened on Thursday. As a result, benchmark 10-year Treasury rates dropped as low as 2.94 percent. It set its worst weekly decline in seven weeks.

Fed’s Attempts to Stable the Market

This came after remarks made earlier in the week by Fed Chair Jerome Powell, who suggested that maintaining price stability was more crucial than reducing the risk that higher rates might hurt the economy. Despite this, investors have dumped growth-sensitive assets as worries grow that any slowdown in the U.S. will spread to the rest of the globe, causing the dollar to recover swiftly. The core premise that inflation is a concern and that the Federal Reserve is laser-focused on raising rates to address it has not been challenged by recessionary fears. Concerns about inflation and growth in Europe were exacerbated by the war between Russia and Ukraine. It caused the EUR/USD to decline by 0.3% to 1.0453.

Since the start of the epidemic, business executives in the U.K. have never been more pessimistic about the economy’s future. Since the coronavirus first affected the U.K. in early 2020, a measure of economic confidence recorded by the Institute of Directors, which polled more than 400 CEOs, plummeted to minus 60 in June from minus 45 in April.

The Japanese yen gained support as a haven, as USD/JPY dropped 0.6 percent to 134.97. China’s manufacturing activity expanded at its fastest rate in 13 months in June. It was measured by the Caixin/Markit manufacturing purchasing managers’ index, which increased to 51.7 in June thanks to the lifting of COVID lockdowns. Hence, the risk-sensitive AUD/USD fell 1.1 percent to 0.6821. Moreover, the USD/CNY rose 0.1 percent to 6.7078.