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Dollar catches a break after bruising week as investors turn risk averse

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© Reuters. FILE PHOTO: U.S. hundred dollar notes are seen in this picture illustration taken in Seoul February 7, 2011. REUTERS/Lee Jae-Won/File Photo

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The U.S. dollar recouped some of its losses against the euro on Friday, but remained set for its worst weekly performance against the common currency since early February as investors questioned whether the greenback’s month-long rally was done.

The greenback has been supported in recent months by a flight to safety by investors, amid a rout across markets due to fears of the impact of soaring inflation, a hawkish Federal Reserve and the Russia-Ukraine conflict.

That rally, however, sputtered this week as increased volatility in global financial markets sent investors to the yen and the Swiss franc for safety.

The dollar was up about 0.3% against the euro. For the week the U.S. currency was down about 1.5%, its worst weekly showing against the euro since early February.

“The buck struggled to keep afloat this week as the rush to safety resulted in higher U.S. Treasury bond prices and lower yields,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.

“Meanwhile, an improving timeframe and trajectory for ECB interest rate hikes gave the euro an added boost,” Manimbo said.

Euro zone money markets on Friday ramped up their bets on a 50 basis-point interest rate hike from the European Central Bank in July that would bring the bank’s policy rate to 0%.

Earlier this week, Dutch central bank governor and ECB policymaker Klaas Knot said the bank should keep the door open to a 50 bps hike if upcoming data suggested inflation was “broadening further or accumulating”.

The dollar’s retreat this week came after it hit a more than 5-year high against the euro last week.

“We see the buck as a bit elevated for sure and see room for other currencies to flourish as there is a gradual shift to better prospects if the global economy is to be helped out and revived from a terrible first half to the year,” said Juan Perez, director of trading at Monex USA in Washington.

Other safe-haven currencies have rallied this week as global equities have come under pressure, although stocks in Europe clawed back some ground on Friday.

The Swiss franc was on track for a near 3% weekly gain versus the dollar, its best weekly gain in more than two years, while the Japanese yen was set for an almost 1% weekly gain.

Sterling, up 0.06% on Friday, was set for its biggest weekly gain since December 2020 against the dollar as the latest economic data suggested the market might not need to scale back its expectations for Bank of England rate hikes much further.

In cryptocurrencies, bitcoin was about flat at just above $30,000, arresting steep declines seen in recent weeks.

Dollar selling takes a pause after bruising week

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