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The dollar reaches high in two decades amid rising US interest rates, Ukraine war, China’s shutdowns By Reuters





© Reuters. FILE PHOTO: US dollar bills are shown in this illustration taken, February 14, 2022. REUTERS / Dado Ruvic

By Tom Westbrook

SINGAPORE (Reuters) – The dollar reached a two-decade high on Monday as investors sought safety and returns due to growing concerns about declining global economic growth and rising interest rates.

Rising inflation, the war in Ukraine and tighter lockdowns against COVID-1[ads1]9 in Beijing and Shanghai have made investors uncertain on many points, but they are confident that US interest rates will rise – and the dollar will follow.

“Movements in US interest rates are not the only dollar support,” strategists at NatWest Markets said in a note.

“Downside risks to global growth stemming from Ukraine and China are more pressing for Europe and Asia relative to the United States, creating an atmosphere of 2018-like dollar exceptionalism.”

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

The euro was down 0.4% to $ 1.0508 and a whisk over a recent fall of $ 1.0469. The yen was close to a two-decade low of $ 130.96 per dollar, while the pound tumbled at $ 1.2294, just above Friday’s 22-month low. The Canadian dollar reached its lowest level since December.

In China, trade data showed that imports were flat-lined in April and exports rose 3.9% – slightly better than expected and enough to keep the Australian dollar at $ 0.7006 and lower than January’s low of $ 0.6967.

However, the yuan hit a new 18-month low of $ 6.7110 per dollar as austerity measures in Shanghai tightened. Traders see the fallout from the inevitable strain on China’s economy that is raging across the region.

The fall of 0.9% to $ 0.6346 and the US dollar reached several-year highs on trade-sensitive Taiwan dollar, South Korean won, Singapore dollar and Malaysian ringgit.

It hit its highest in nine months against the Indonesian rupee.

FORGOTTEN DREAM

The yield on the benchmark index for 10-year US government bonds has risen a staggering 163 basis points this year, taking the dollar with it.

It is up almost 9% for the year and increased for a fifth week in a row last week. That equated to Friday’s nearly 20-year high of 104,070 during the nervous Asia session.

Speculation that Russian President Vladimir Putin may declare war on Ukraine to accumulate reserves during his speech during the “Victory Day” celebration also hurt market sentiment.

Putin has so far characterized Russia’s actions in Ukraine as a “special military operation”, not a war or an invasion.

The US Federal Reserve raised its benchmark interest rate by 50 basis points (bps) last week, and strong job data has strengthened efforts for further large increases, with inflation figures coming into focus on Wednesday as the next risk of an upside surprise.

The futures markets price a 75% chance of an interest rate increase of 75 bp at the Fed’s next meeting in June and more than 200 bp with a tightening at the end of the year.

“Risks around the US CPI feel binary; a moderation of 8.5% would be comforting to say the least, but a boost will undoubtedly revive expectations of 75 bp Fed increases, and probably give the dollar a boost,” said analysts at ANZ Bank.

“The idea that synchronized global austerity can go smoothly now feels like a forgotten dream.”

Cryptocurrencies have been hit in the run-up to risky assets, with bitcoin accounting for weekend losses and nearing its lowest levels of the year at $ 33,780 while ether, which fell 4% on Sunday, was at $ 2,470.



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