Investors priced in the chance of an aggressive near-term tightening path by the ECB

• The dollar slipped across the board yesterday, falling to a 2-week low
• The dollar logged sharp declines against the Japanese yen and the Swiss franc
• Britain's pound rose 1.2% against the dollar yesterday but remained close to the 2-year low

Forex market 

The dollar slipped across the board yesterday, falling to a 2-week low, extending its pullback from a two-decade high, as most major currencies battered by the greenback's advance this year drew buyers. With volatility on the rise in global financial markets, the dollar logged sharp declines against the Japanese yen and the Swiss franc, which tend to attract investors in times of market stress or risk. But the dollar also fared poorly against riskier currencies, including the Australian and the New Zealand dollar, as deep year-to-date losses for these currencies attracted some buyers. 

Investors have perhaps just had enough of the USD and are looking to diversify risk – especially as broader USD support from rising U.S yields appears to have maxed out. The U.S Dollar Currency Index, which tracks the greenback against six major currencies, was down 1.0% at 102.79, its lowest since May 5. That puts the index on pace for one of only six instances over the past five years when it logged a 1-day loss of 1% or more. 

Economic Calendar

The index hit a nearly two-decade high last week as a hawkish Federal Reserve and growing worries about the state of the global economy helped lift the U.S. currency. The index is up 7.5% for the year. Yesterday, the dollar slipped to a 3-week low against the yen and a 2-week low against the Swiss franc. 

Analysts, however, warned against reading too much into the dollar's retreat. The Swiss franc was supported against the dollar and the euro after Swiss National Bank president Thomas Jordan signaled on Wednesday the SNB was ready to act if inflation pressures continue. The euro rose to a more than 1-week high against the dollar, as investors priced in the chance of an aggressive near-term tightening path by the European Central Bank. 

Britain's pound rose 1.2% against the dollar yesterday but remained close to the 2-year low touched last week as soaring inflation combined with a murky growth outlook capped gains. The Canadian Dollar was trading 0.8% higher at 1.2790 to the greenback, or 78.19 U.S cents, after touching its strongest level since May 5 at 1.2784. On Wednesday, the currency fell 0.6% as Wall Street tumbled. 

More Shanghai residents were given the freedom to shop for groceries for the first time in nearly two months as authorities set out more plans for exiting the city-wide COVID-19 lockdown more fully. Investors have worried that lockdowns in China would slow global economic growth.

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Euro-EUR

The single currency rose to a more than 1-week high against the dollar in yesterday’s trading session, as investors priced in the chance of an aggressive near-term tightening path by the European Central Bank. The U.S dollar was broadly lower yesterday despite risk-off conditions in the cross-asset space. 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 gained as the dollar slipped across the board yesterday, falling to a 2-week low, extending its pullback from a two-decade high, as most major currencies battered by the greenback's advance this year drew buyers. With volatility on the rise in global financial markets, the dollar logged sharp declines against the Japanese yen. 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 climbed to a two-week high against a weaker dollar yesterday, winning a respite for now from the soaring inflation and murky growth outlook that has weighed on sentiment towards the British currency. Having fallen sharply on Wednesday, the pound bounced back, a move analysts attributed to a broadly-weak dollar. 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.

Canadian Dollar-CAD

The Canadian Dollar strengthened to its highest level in two weeks against its U.S counterpart yesterday as China eased restrictions to contain the spread of the coronavirus and the greenback broadly fell. Canada is a major producer of commodities, including oil, so the loonie is sensitive to the outlook for the global economy. 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.

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Australian Dollar-AUD

The Australian Dollar lost ground yesterday as signs of an easing in Shanghai's lockdown helped steady sentiment after a rout on Wall Street. The Chinese financial hub will allow more businesses in zero-COVID areas to resume normal operations from the start of June, stirring hopes for a much-needed rebound in consumer demand. 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.

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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