Dollar set for sixth week of gains despite slip, as slowdown worries persist

By Chuck Mikolajczak

NEW YORK (Reuters) - The dollar edged lower on Friday, but was still set for a sixth straight week of gains as investors remained concerned about the possibility of global growth slowing and Federal Reserve policy tilting the U.S. into a recession.

High inflation and the Fed's rate hike path have fueled worries of a policy error that could cause 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.

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.

"By and large we are still looking at a market that is freaked out in about 16 different directions," said Joseph Trevisani, senior analyst at FXStreet.com.

"Equities are, they are worried about the U.S. growth this year, Europe is looking dicey to put it mildly and China is insisting on this fanatical COVID policy, none of that bodes well for the global economy so you are still seeing a lot of people resort to the dollar in its traditional safety role."

Investors have gravitated towards 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.

The dollar index fell 0.115% at 104.640 against a basket of major currencies after earlier reaching 105.01, its highest since Dec 2002, The U.S. currency is on track for its sixth straight week of gains, its longest weekly streak of the year and has climbed more than 9% for 2022.

Fed Chair Jerome Powell said late Thursday that its fight to bring inflation in check would "include some pain" as the impact of higher interest rates is felt, but that the worse outcome would be for prices to continue speeding ahead.

The euro was up 0.14% to $1.0394, reversing course after dipping to 1.0348, its lowest since Jan 3, 2017.

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.

The Japanese yen weakened 0.80% versus the greenback at 129.38 per dollar, while Sterling was last trading at $1.2216, up 0.14% on the day.

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.

In cryptocurrencies, Bitcoin last rose 7.58% to $30,707.03. Bitcoin earlier this week fell to its lowest level since December 2020 as cryptocurrencies have been rattled by the collapse of TerraUSD, a so-called stablecoin.

Ethereum last rose 10.34% to $2,126.13.