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FOREX-Dollar loses steam after weeks-long rally

·2 min read

(Updates prices, adds new comment)

By Iain Withers

LONDON, May 20 (Reuters) - The U.S. dollar was headed for its worst week since early February versus major peers on Friday, as some of the heat faded from the currency's breakneck 10% surge.

The greenback has been supported by a flight to safety by investors, amid a rout across markets due to fears of the impact of soaring inflation and Russia's invasion of Ukraine.

But after rising in all but two of the last 14 weeks, the dollar index was on track for a 1.6% weekly fall on Friday.

The index, which tracks the dollar against six other major currencies, dipped 0.1% on the day to 102.82. Last Friday, it soared to the highest since January 2003 at 105.01.

Analysts said the dollar's weakness partly reflected a recent fall in U.S. Treasury yields adjusted for inflation, but questioned whether the pullback would last.

"It has raised questions of whether the dollar really has reached exhaustion. But it is too soon to say the dollar has peaked," said Kenneth Broux, currency strategist at Societe Generale.

The dollar likely would only weaken longer term if evidence of economic strength built outside the United States, particularly in Europe and China, Broux said, adding that China's move to cut a key lending benchmark may help.

A recent build-up of long U.S. dollar positions could also weigh on the greenback, currency analysts at MUFG said in a note.

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 more than 3% weekly gain versus the dollar, while the Japanese yen was set for an almost 1% weekly gain.

The Swiss franc was last up a quarter of a percent at 0.97040 franc, while the yen was down 0.2% at 128.060 yen.

The euro has also benefitted from the dollar's weakness, and was on track for a weekly gain of 1.7%. It was last broadly flat at $1.05875.

Sterling was set for its biggest weekly gain since December 2020 although it was largely unchanged on the day at $1.24810.

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

(Reporting by Iain Withers, additional reporting by Kevin Buckland in Tokyo; Editing by Kim Coghill, Kirsten Donovan)