Title: Flight to quality lifts U.S. dollar to two-year highs; Aussie crumbles

Apr 25, 2022 03:55AM ET

By: AnalysisWatch

The US dollar climbed to a two-year high against its peers on Monday and was on track for its biggest one-day gain in more than six weeks as a wave of risk aversion swept through global markets, reinforcing the greenback's safe-haven appeal.

With the war in Ukraine entering its third month and the lockdown of 25 million people in Shanghai entering its second, investor sentiment was fragile amid fears that the rise in consumer prices would lead to a rapid increase in global interest rates.

Against a basket of its peers, the dollar gained 0.6 percent to 101.62 in early London trade, a level it last reached in March 2020 and on track for its biggest one-day rise since March 11.

The euro's tiny gains following the announcement of French President Emmanuel Macron's comfortable election victory over far-right rival Marine Le Pen quickly evaporated, with the single currency down 0.8% at $1.0729.

Commodity currencies were particularly punished as the dollar rose, with the Australian dollar and New Zealand dollar the biggest losers.

The Australian dollar, which was one of the biggest gainers among currencies in the first quarter of 2022 thanks to rising commodity prices, weakened across the board. It weakened by more than 1 % against the US dollar and weakened by a similar amount against the Swiss franc.

Incorrect statements by various policymakers last week also increased the risk of aggressive monetary tightening by global central banks. Money markets expect the Fed to raise interest rates by half a point at the next two meetings and the European Central Bank by 25 basis points in July.