Dollar hits two-decade high amid US interest rate hikes, Ukraine war and China shutdown By Reuters

Written by Tom Westbrook

SINGAPORE (Reuters) – The dollar hit a two-decade high on Monday as investors sought safety and a yield on mounting concerns about slowing global economic growth and rising interest rates.

Rising inflation, the war in Ukraine, and the tightening of COVID-19 lockdowns in Beijing and Shanghai have left investors unsure of many counts, but sure that US interest rates are rising — and the dollar is watching.

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

Downside risks to global growth from Ukraine and China are more urgent for Europe and Asia than for the United States, creating an atmosphere of 2018-style dollar exceptionalism.

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

The euro was down 0.4% at $1.0508 and lightly felt above the recent low of $1.0469. The yen approached two-decade lows at 130.96 per dollar, while the British pound slipped at $1.2294, just above a 22-month low on Friday. The Canadian dollar hit its lowest level since December.

China’s trade data showed imports flat in April and exports rose 3.9% – slightly better than expected and enough to keep the Australian dollar at $0.7006 away from January’s low of $0.6967.

However, the yuan fell to an 18-month low of 6.7110 per dollar as the lockdown tightened in Shanghai. Traders see the implications of the inevitable burden on the Chinese economy across the region.

It fell 0.9 percent to $0.6346, and the dollar hit multi-year highs on the trade-sensitive Taiwan dollar, the South Korean won, the Singapore dollar and the Malaysian ringgit.

It reached its highest level in nine months against the Indonesian rupiah.

I forgot the dream

The yield on the benchmark 10-year US government bond has risen to 163 basis points this year and has taken the dollar with it.

It’s up about 9% from the year and gained the fifth straight week last week. It equaled Friday’s near 20-year high of 104.070 during the tense Asian trading session.

Speculation that Russian President Vladimir Putin may declare war on Ukraine in order to call up the reserves during his D-Day speech also hurt market sentiment.

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

The US Federal Reserve raised its benchmark funds rate by 50 basis points last week, and strong jobs data reinforced bets for more big hikes, with an eye on inflation numbers on Wednesday with the next risk of an upward surprise.

Futures markets expect a 75% chance of a 75 basis point rate hike at the Fed’s next meeting in June and over 200 basis points to tighten by the end of the year.

“Risks around US CPI look two-fold; moderation from 8.5% would be fairly comfortable, but a hike would revive expectations for a 75bp Fed hike, possibly giving the dollar a boost,” ANZ Bank analysts said.

“The idea that a simultaneous global tightening might continue gently seems like a forgotten dream.”

Cryptocurrencies were battered in a rush from risky assets and Bitcoin was posting losses over the weekend and near its lowest level for the year at $33,780 while Ether, down 4% on Sunday, was at $2,470.