Peter Nurse

Investing.com – The U.S. dollar edged lower in early European trade Thursday, handing back some of the previous session’s substantial gains although the safe haven remains in demand with risk sentiment fragile.

The, which monitors the greenback against six other currencies at 3:05 am ET (705 GMT), traded 0.1% less to 103.770 after a 0.6% increase during the previous session.

climbed 0.2% to 1.0487, after Wednesday’s 0.8% slump, rose 0.2% to 1.2367, after dropping 1.2% overnight, following a surge in , fostered worries for a sharp economic slowdown, while rose 0.6% to 0.6992, after the pair had retreated 1.1% overnight.

By contrast, rose 0.3% to 128.57, with the safe-haven yen sliding during Thursday’s session.

Even though these assets are now more liquid than before a rally, the sentiment is still fragile due to mounting fears that an aggressive tightening of the Federal Reserve or other central banks around the world could slow growth.

The Fed Chair stated earlier this week that the U.S. central banks would press as hard as necessary to stop a surge of. Wednesday’s weak U.S. added to concerns about slowdown.

The “comments by Fed Chair Powell were quite relevant from a signaling perspective, as he firmly reiterated the Fed’s determination to bring inflation sustainably lower, even by hiking beyond the neutral rate if necessary,” said analysts at ING, in a note. “The notion of aggressive Fed tightening continues to argue against a sustained bearish dollar trend.”

Pay attention, Thursday will see the release of minutes from the European Central Bank’s last meeting. Investors are looking for information on a timetable that could lead to tightening monetary policy.

Dutch central banker Klaas Knot, on Tuesday, raised the possibility of a 50 basis points hike in July, the first time that any ECB policymaker has mentioned that, and Bank of Finland Governor Olli Rehn said on Wednesday that the ECB should get its key rate above zero “relatively quickly.”

“We also believe that markets are pricing in too much tightening by the ECB – though not by the Fed – and expect the theme of growth divergence (exacerbated by the EU-Russia standoff on commodities) to become more relevant into the summer,” ING added.