Published: 24/05/2022 By ECAPThe retracement in the recent US dollar rally stretched into another day yesterday, with the greenback selling off against almost every major and emerging market currency. Concerns over a possible slowdown in global growth have eased in the past week or so amid improving headlines out of China and strong macroeconomic data out of the major areas. The safe-haven dollar has subsequently lost around 2.5% of its value in the past ten days, sending it to near the bottom of the FX performance tracker during that time. Investors are also coming around to the view that it will be difficult for the Federal Reserve to exceed market expectations this year, while many of its peers have plenty of room to do so, which is further hurting the US currency.
With no major data from the UK this week, the EUR takes centre stage as ECB President Lagarde signals rate hikes within the eurozone. Lagarde delivered a long-awaited hawkish pivot during her communications yesterday, lifting the euro back above the 1.06 level to its strongest position since late-April. Lagarde said that the bank would ‘likely to be in a position to exit negative interest rates by the end of the third quarter’, effectively confirming that the ECB will raise interest rates by at least 25 basis points at its July meeting, and follow this up with another hike of similar magnitude in September.