MUFG Research highlights 3 reasons for the limited correction lower in the USD at the start of this week.
"The correction lower for the US dollar at the start of this week has been driven by a number of factors. Firstly, there is building optimism that China is moving closer to easing the lockdown in Shanghai after it reported no new COVID infections in the broader community for a third consecutive day," MUFG notes.
"Secondly, as we highlighted in yesterday’s FX Daily Snapshot there have been encouraging reports suggesting that the stand-off between the EU and Russia over paying for gas supplies is looking less likely to trigger further disruption to energy supplies and the euro-zone economy in the coming weeks/months.
Thirdly, there has been an increase in market speculation that the major European central banks of BoE and ECB will be more active in tightening policy which is helping to narrow expectations for policy divergence with the Fed," MUFG adds.