High Inflation and the Fed’s rate hike path have fueled worries of a policy error

• The dollar showed little reaction on Friday to data showing U.S import prices
• The University of Michigan showed its reading of consumer sentiment for early May deteriorated
• Britain's pound edged up against the dollar on Friday, offering some respite from a week of selling

Forex market

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

High inflation and the Fed's rate hike path have fueled worries of a policy error that could cause a recession or a stagflation scenario of slowing growth and high prices. Readings this week showed some signs that inflation was beginning to ebb, although at a slow pace. 

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The dollar showed little reaction on Friday to data showing U.S. import prices were unexpectedly flat in April as a decline in petroleum costs offset gains in food and other products, a further sign that inflation has probably peaked. Other data from the University of Michigan showed its preliminary reading of consumer sentiment for early May deteriorated to its lowest level since August 2011 as concerns about inflation persisted. 

Even with the recent inflation readings, Cleveland Fed President Loretta Mester said it would need to move lower for "several months" before the Fed can safely conclude it has peaked, and she would be ready to consider faster rates hike by the September Fed meeting if the data do not show improvement. But the greenback weakened as equities rallied after a steep decline that recently put the S&P 500 on the cusp of confirming a bear market as investors looked for signs stocks had bottomed. 

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Investors have flocked to the safe haven on concerns about the Fed's ability to dampen inflation without causing a recession, along with worries about slowing growth arising from the Ukraine crisis and the economic effects of China's zero-COVID-19 policy amid rising infections. The single currency was on track for its fifth weekly drop in six and has been hurt by both fears resulting from Russia's invasion of Ukraine stymieing the economy and the dollar rally. 

The safe-haven yen has also begun to strengthen against the greenback and was on track for its first weekly gain versus the dollar after nine straight weeks of declines.

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Euro-EUR

The single currency was on track for its fifth weekly drop in six and has been hurt by both fears resulting from Russia's invasion of Ukraine stymieing the economy and the dollar rally. While the European Central Bank is widely anticipated to begin hiking rates in July, the central bank is expected to adopt a less aggressive pace than the Fed. Overall, the EUR/USD traded with a low of 1.0469 and a high of 1.0563 before closing the day around 1.0497 in the New York session.

Japanese Yen-JPY

The Japanese Yen has begun to strengthen against the greenback, and was on track for its first weekly gain versus the dollar after nine straight weeks of declines after the yen's slump to two-decade lows against the dollar has emerged as a source of concern for Japanese policymakers as it inflates already rising costs of fuel and raw material imports. Overall, the USD/JPY traded with a low of 128.32 and a high of 131.23 before closing the day around 130.82 in the U.S session.

British Pound-GBP

The British Pound edged up against the dollar on Friday, offering some respite from a week of selling that pushed the currency to two-year lows. Senior British politicians want to overhaul the agreement on trade between Northern Ireland and the United Kingdom that they signed up to in order to get Brexit done. Overall, the GBP/USD traded with a low of 1.2409 and a high of 1.2568 before closing the day at 1.2455 in the New York session.

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Canadian Dollar-CAD

The Canadian Dollar strengthened against its U.S counterpart on Friday as oil prices rose and Wall Street clawed back some recent losses, but the currency was on course to extend a string of weekly declines. The price of oil, one of Canada's major exports, rose as the prospect of a European Union ban on Russian oil offset worries about faltering global demand. Overall, USD/CAD traded with a low of 1.2788 and a high of 1.2877 before closing the day at 1.2805 in the New York session.

Australian Dollar-AUD

The Australian Dollar notched another week of heavy losses on Friday, as growth forecasts for China were downgraded and the yuan extended its decline. It was notable that the Aussie also slid against the yen, indicating the flight to safety was spreading wider. Adding to the pain was China's decision to limit unnecessary travel outside the country by its citizens. Overall, AUD/USD traded with a low of 0.6826 and a high of 0.6951 before closing the day at 0.6853 in the New York session.

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Euro-Yen EUR/JPY

EUR/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 35 and lies below the neutral zone. In general, the pair has gained 1.25%.

Sterling-Yen GBP/JPY

Currently, GBP/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 33 reading and lies below the neutral zone. On the whole, the pair has gained 1.16%.

Aussie-Yen AUD/JPY

Currently, the cross is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 36 reading and lies below the neutral region. In general, the pair has gained 1.45%.

Euro-Sterling EUR/GBP

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 58 and lies above the neutral region. Overall, the pair has gained 0.12%.

Sterling-Swiss GBP/CHF

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 50 and lies below the neutral region. In general, the pair has lost 0.42%.

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