FOREX-Dollar near two-year peak on China COVID fears, Fed up bets
By Alun John
HONG KONG, April 26 (Reuters) – The dollar held near a two-year high on Tuesday as concerns over the economic impact of China’s COVID-19 lockdowns dampened the greenback’s appeal as a safe haven and that aggressive expectations of higher interest rates in the United States have kept bond yields high.
The dollar index, which measures the greenback against six major peers, was down 0.13% at 101.59 after hitting a two-year high of 101.86 overnight.
It has gained 3.3% so far this month, which would be its biggest month of gains since November 2015.
“Further upside (in the dollar index) remains a good bet. Growth risks in China are rising as authorities continue an aggressive COVID campaign, conditions around Ukraine remain volatile, and the ‘speech of the Fed “remains as hawkish as ever,” Westpac analysts said in a note. .
China’s financial hub of Shanghai has now been under a strict lockdown to fight COVID for about a month, while Beijing overnight stepped up plans to mass test 20 million people and stoked concerns over a impending lockdown.
Belligerent comments from various central bank policymakers last week also raised the prospect of aggressive interest rate hikes. The most significant of these came from the US Federal Reserve, whose markets expect to raise rates by half a point at each of its next two meetings.
China’s offshore yuan was slightly higher, however, at 6.5572 to the dollar after the People’s Bank of China announced late Monday that it would reduce the amount of foreign currency banks must hold as reserves.
That helped the currency recover from a yearly low of 6.609 to the dollar on Monday, hurt by fears over China’s economic growth.
Stock markets and U.S. bond yields also edged higher on Tuesday amid improving overall risk sentiment.
The euro was at $1.0727, up 0.14% and verging on a two-year low of $1.0697 hit on Monday, when market nerves offset optimism over the re-election of French President Emmanuel Macron.
The pound was at $1.2744, up 1.8%, after hitting its lowest level since September 2020 overnight. Data from the US futures market shows the funds amassed their biggest bet against the pound since October 2019, a bet now worth almost $5 billion.
The Australian dollar rebounded 0.6% from its two-month low overnight, which it hit after lockdowns in China weighed on commodity prices.
The dollar was little changed against the yen, at 128.16. The Japanese currency managed a very slight recovery this week from last week’s 20-year low at 129.40.
Bitcoin was a bit firmer at $40,600 and Ether at $3,000.
Researchers at crypto liquidity provider B2C2 said trading in the crypto market is currently highly correlated with stock markets, with no strong crypto-related themes.
(Reporting by Alun John; Editing by Kenneth Maxwell and Sam Holmes)