The Greenback Takes a Hit as the Euro Makes Gains

The European Central Bank signaled it will be moving away from negative interest rates, resulting in a hike in the value of the euro while the U.S. dollar index dropped on Monday. Other risk currencies and U.S. equities gained ground following last week’s decline and in parallel with European stocks.

The greenback fell across the board after the sell-off in the past few weeks as its European counterpart pared some of its losses. Indeed, the dollar index reached a record peak of 105.01 by mid-May and fell back to 102.09 this week.

Hawkish Moves Ahead 

ECB President Christine Lagarde is expected to move the deposit interest rate up by September as inflation continues to rise. Following the announcement, investors delved into riskier assets as their concerns about a recession were somewhat eased and overall sentiment for economic growth tilted towards more positive territory.  

Events in Focus  

Interest in the greenback remains strong despite foreign currencies moving to the upside. A rise in the euro, however, arrived as the ECB surprised investors with hawkish projections. The upcoming change in policy is likely to benefit the euro, but USD bulls will be ready to take charge this week in anticipation of the Federal Reserve’s meeting minutes. On Wednesday, the US central bank will release minutes from its last meeting on May 3-4 when Fed officials approved a half-percentage-point interest rate increase. 

Also in the spotlight this week is the geopolitical stand-off in Asia as U.S. President Joe Biden visits the region. Shanghai is moving slowly out of the strict lockdown as the government rolls out a flurry of actions to support the economy and reassure investors. 

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