Dollar Down, but near Two Year High as Chinese COVID-19 Concerns Mount

By Gina Lee – The dollar was down on Tuesday morning in Asia but was near a two-year high against the euro and an 18-month high versus the pound. Concerns about the economic impact of China’s COVID-19 lockdowns and the aggressive pace of U.S. interest rate hikes gave the safe-haven dollar a boost.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was down 0.23% to 101.535 by 11:32 PM ET (3:32 AM GMT).

The USD/JPY pair edged down 0.15% to 127.92.

The AUD/USD pair rose 0.60% to 0.7220, with Australian markets opening after a holiday. The NZD/USD pair was up 0.39% to 0.6639.

The USD/CNY pair was down 0.41% to 6.5325 while the GBP/USD pair was up 0.23% to 1.2770.

China’s offshore yuan was steadier in early trading at 6.5770 per dollar, with the People’s Bank of China cutting the amount of money that banks need to have in reserve for their foreign currency holdings on Monday. The move helped the yuan rally from a year low of 6.609 per dollar on Monday.

Meanwhile, the dollar index jumped 0.58% on Monday and hit a two-year peak of 101.86. The index has gained 3.3% in April 2022 to date, the largest month of gains since November 2015.

“Further dollar index upside remains a good bet. China growth risks are rising as authorities pursue an aggressive COVID-19 campaign, conditions around Ukraine remain volatile and ‘Fedspeak’ remains as hawkish as ever,” Westpac analysts said in a note.

The COVID-19 lockdown in the Chinese city of Shanghai has now been in place for around a month. A mass-testing campaign currently underway in Beijing’s most populous district will be expanded and is stoking fears of a lockdown.

Hawkish comments by various central bank policymakers during the previous week also raised the probability of aggressive interest rate policy tightening. The U.S. Federal Reserve is widely expected to hike rates by a half-point at each of its next two meetings. These concerns not only drove investors to the greenback but also caused equity markets to sell off heavily and U.S. Treasury yields to fall.

Across the Atlantic, the pound hit its lowest since September 2020 overnight. Funds have amassed their biggest wager against the pound since October 2019, now worth close to $5 billion, U.S. futures market data showed.

In Asia Pacific, the Australian dollar hit a two-month low overnight as China’s COVID-19 lockdowns weighed on commodity prices. The dollar fell 0.4% versus the yen, however, with the Japanese currency managing a very slight recovery this week from the 20-year low of 129.40 hit during the previous week.

Bitcoin was a little firmer at $40,500, with ether at $3,000. Cryptocurrencies market trading is currently correlated closely with equity markets and there is “no crypto theme so far to override weakness from rates/growth/inflation/war concerns,” B2C2 researchers told Reuters.

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