Dollar Edges Higher but Set for Losing Week; China Cuts Key Rate

Friday,   20-May-2022   02:04 PM (IST)

The U.S. dollar edged higher in early European trade Friday, but is still heading for its worst week since February as traders reacted to lower U.S. Treasury yields. At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 102.888, but was down 1.6% over the week, on track to snap a six-week winning run. The dollar had been in strong demand prior to this week, climbing last Friday to the highest since January 2003, helped by its appeal as a safe haven amid risks to growth from aggressive monetary tightening, led by the Federal Reserve and China's strict COVID-19 lockdowns. However, a decline in U.S. yields has tarnished that appeal, with the benchmark 10-year Treasury yield falling to a three-week low of 2.772% on Thursday before recovering to 2.859% early Friday, still some way off the 3½-year high of over 3.2% earlier this month. EUR/USD edged lower to 1.0581, still on course for a weekly gain of over 1.6%, GBP/USD rose 0.1% to 1.2476, climbing 1.8% this week, its best showing since late 2020, helped by better than expected retail sales data for April, rising 1.4% month-on-month last month after a 1.2% drop in March. AUD/USD rose 0.08% to 0.7053, after gains of over 1.3% during the previous session, while USD/JPY edged lower to 127.75, with the yen still heading for a second-straight weekly gain. Elsewhere, USD/CNY fell 0.4% to 6.6872 after China cut a key interest rate by an unexpectedly wide margin earlier Friday, as Beijing fights a slowdown in the world's second-biggest economy. China lowered the five-year loan prime rate, a benchmark reference rate for mortgages, by 15 basis points to 4.45%, the largest cut on record, in an attempt to boost the country’s housing market which has been hurt by the COVID-19 related mobility restrictions. China’s lockdowns to combat the outbreaks of COVID-19 could mean its economic growth may undershoot the U.S. for the first time since 1976.