The dollar reached its highest level in two decades amid rising US rates, the war in Ukraine, the closure of China Reuters


© Reuters. FILE PHOTO: This illustration shows US dollar banknotes, taken on February 14, 2022. REUTERS / Dado Ruvić

Author: Tom Westbrook

SINGAPORE (Reuters) – The dollar hit a two-decade high on Monday as investors sought security and returns amid growing concerns about a slowdown in global economic growth and rising interest rates.

Rising inflation, the war in Ukraine and tighter blockades against COVID-19 in Beijing and Shanghai have left investors unsure on many points, but they are confident that US interest rates are rising – and the dollar is following.

“U.S. interest rate movements are not the only support for the dollar,” NatWest Markets strategists said in a note.

“The risks to global growth posed by Ukraine and China are more important for Europe and Asia than the US, creating the impression of dollar-style dollar excellence in 2018.”

The dollar hit a 22-month high on the New Zealand dollar sensitive to growth and rose 1% to a three-month high against the Australian dollar as Asian stock markets fell. It rose 0.3% to its highest level since 2019 on the Swiss franc.

The euro fell 0.4% to $ 1.0508 and slightly above the recent low of $ 1.0469. The yen was close to a two-decade low of 130.96 per dollar, while sterling weakened to $ 1.2294, barely above its 22-month low on Friday. The Canadian dollar fell to its lowest level since December.

Data on trade in China showed that imports were flat in April, while exports rose 3.9% – slightly better than expected and enough to keep the Australian dollar at $ 0.7006 and below the January low of $ 0.6967 .

However, the yuan was withdrawn to an 18-month low of 6.7110 per dollar as they tightened measures in Shanghai. Traders see the consequences of the inevitable stagnation of the Chinese economy throughout the region.

It fell 0.9% to $ 0.6346, and the U.S. dollar reached multi-year highs against the trade-sensitive Taiwanese dollar, South Korean won, Singapore dollar and Malaysian ringgit.

Compared to Indonesian rupees, it reached the highest amount in the last nine months.

FORGOTTEN DREAM

Yields on reference 10-year U.S. government bonds this year climbed an incredible 163 basis points and took the dollar with it.

It grew by almost 9% in the year and gained for the fifth week in a row last week. It equaled a nearly 20-year high on Friday of 104,070 during a nervous Asian session.

Speculation that Russian President Vladimir Putin could declare war on Ukraine to call up reserves during his speech at Victory Day celebrations has also hurt market sentiment.

So far, Putin has characterized Russian action in Ukraine as a “special military operation” rather than a war or invasion.

The US Federal Reserve raised its fund reference rate by 50 basis points (bps) last week, strong job data boosted bets on further big increases, and inflation data on Wednesday are in focus as the next risk of surprise upside down .

Future markets estimate a 75% chance of a 75-point rate hike at the next Fed meeting in June and more than 200 basis points to tighten by the end of the year.

“Risks around the US CPI seem binary; a reduction of 8.5% would be slightly comforting, but an increase would undoubtedly revive expectations for a Fed increase of 75 bp and likely give a boost to the dollar,” ANZ Bank analysts said.

“The idea that synchronized global tightening could unfold slowly now seems like a forgotten dream.”

Cryptocurrencies were overwhelmed by the onslaught of risky assets, with bitcoin suffering losses over the weekend and close to its lowest level of the year at $ 33,780, while ether, which fell 4 percent on Sunday, was at $ 2,470.

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