Title: Dollar perched at two-decade high on weak China data

May 16, 2022 03:56AM ET

By: AnalysisWatch

The U.S. dollar consolidated gains near a two-decade high on Monday as poor Chinese economic data hurt cyclical currencies such as the British pound and Australian dollar.

While expectations of a tightening stance by the U.S. Federal Reserve have fueled the dollar rally that has sent the broad index up nearly 10% so far this year, the latest episode of dollar gains has been driven by extended shutdowns in China.

Retail and factory activity in China fell sharply in April as workers and consumers stayed indoors due to widespread COVID-19 closures. The Chinese offshore yuan held near its September 2020 low of 6.8380 yuan, hit last week.

The dollar index was at 104.57 after briefly topping 105 on Friday, its highest level since December 2002, after rising for six straight weeks.

The euro was at $1.0395 on Monday morning, slightly below and just above the $1.0354 level it reached on Thursday, its lowest level since early 2017, and analysts expect the $1.0340 level to be a key support for the euro.

HSBC strategists expect the euro to fall to parity with the dollar next year. "Much weaker growth and much higher inflation present the ECB with one of the most difficult policy challenges within the G10 (central banks)," analysts said.

Stronger movements were seen in the Australian dollar, which fell 0.68% and is the most dependent on the Chinese economy.

Crypto markets, which trade around the clock, had a quiet weekend after last week's turbulence was triggered by TerraUSD, a so-called stablecoin, which broke its dollar peg, although it pared its gains in early trading on Monday.

On Friday, bitcoin was trading at around $29,000, a drop of more than 5%, after falling to $25,400 on Thursday, its lowest level since December 2020.