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  • Writer's pictureanalysiswatch

Title: Dollar near two year-peak on China COVID fears, Fed hike bets

Apr 26, 2022 01:55AM ET

By: AnalysisWatch

The dollar held near a two-year high on Tuesday as concerns about the economic impact of China's freeze on its COVID-19 program kept the greenback's appeal as a safe haven currency and expectations of aggressive U.S. interest rate hikes pushed bond yields higher.

The dollar index, which measures the greenback against its six major counterparts, was 0.13% lower at 101.59 points after hitting a two-year high of 101.86 points overnight.

It has gained 3.3% so far this month, which would be the biggest gain since November 2015.

China's financial capital Shanghai has been under a strict shutdown for about a month to combat COVID, while Beijing expanded its mass testing plan to 20 million people overnight, sparking fears of an impending shutdown.

Last week, aggressive comments from several central bankers raised the prospect of aggressive rate hikes. The most significant such statements came from the Federal Reserve, which markets expect to raise rates by half a percentage point at each of its next two meetings.

This helped the currency recover from Monday's annual low of 6.609/dollar, which was hit by concerns over Chinese economic growth.

Equity markets and U.S. bond yields also rose on Tuesday due to an overall improvement in risk sentiment.

The euro rose 0.14% to $1.0727, breaking away from a two-year low of $1.0697 hit on Monday as market jitters were offset by optimism over the re-election of French President Emmanuel Macron. Sterling was at $1.2744 and rising.

Sterling was at $1.2744, up 1.8%, after hitting its weakest level since September 2020 overnight. Data from the US futures market showed that funds have amassed the biggest bets against the pound since October 2019, which now stands at almost $5 billion.

The Australian dollar rose 0.6%, rebounding from a two-month overnight decline after China's market close dragged commodity prices.

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