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U.S. dollar climbs to two-year peak as risk appetite tumbles; yuan drops

by jcp

By Saikat Chatterjee and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK (Reuters) – The U.S. dollar struck a two-year high on Monday as a wave of risk aversion hit global markets, while the Chinese yuan was set for its biggest three-day losing streak in nearly four years on growing worries of an economic slowdown in China.

With war in Ukraine entering a third month and growing concerns of a China-wide COVID-19 outbreak sparking a rout in Chinese stocks, investors dumped currency market darlings like the Australian dollar and the offshore Chinese yuan.

Against a basket of its rivals, the dollar gained 0.6% to 101.75, a level it last tested in March 2020.

“This dollar dominance can only be explained by the fears of COVID continuing to influence China’s lack of activity,” said Juan Perez, director of trading at Monex USA in Washington.

“Chinese data has been OK, supposedly, per economic figures, but there is growing concern that the No-COVID or zero-COVID measures are creating the need to revise outlooks further downward. China’s shutdowns are killing global optimism,” he added.

China’s yuan fell to a one-year low against the dollar and was last down 0.9% at 6.4575 yuan per U.S. dollar.

The Aussie, which was one of the biggest gainers in currencies in the first quarter of 2022 thanks to surging commodity prices, fell widely. It dropped 1.5% against the U.S. dollar to US$0.7138 and fell 2.1% versus the Japanese yen.

The Norwegian crown also fell nearly 2% versus the U.S. dollar, which last traded up at 9.1235.

Broader currency market volatility gauges ticked higher, with an index rising to its highest levels in more than a month.

BofA Securities strategists said that despite the pickup in currency market volatility, investors were long the Canadian dollar, Aussie, and euro.

The euro’s tiny gains after French President Emmanuel Macron’s comfortable election victory over far-right rival Marine Le Pen quickly dissipated, with the single currency down 0.9% at $1.0716, against a resurgent dollar.

Latest positioning data for last week showed hedge funds trimmed their long euro bets.

Graphic: FX positions – https://fingfx.thomsonreuters.com/gfx/mkt/mopanolqbva/FX%20positions.JPG

Hawkish comments by various policymakers last week also raised the risks of aggressive policy tightening by global central banks. Money markets expect the U.S. Federal Reserve to raise interest rates by a half point at the next two meetings and the European Central Bank to raise interest rates by 25 basis points in July.

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Currency bid prices at 10:18AM (1418 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 101.6600 101.0800 +0.59% 6.269% +101.7500 +101.0500

Euro/Dollar $1.0718 $1.0810 -0.84% -5.72% +$1.0852 +$1.0707

Dollar/Yen 127.7000 128.5000 -0.62% +10.93% +128.8550 +127.6100

Euro/Yen 136.86 138.78 -1.38% +5.03% +139.1900 +136.8600

Dollar/Swiss 0.9562 0.9565 -0.03% +4.83% +0.9597 +0.9548

Sterling/Dollar $1.2723 $1.2840 -0.91% -5.93% +$1.2880 +$1.2706

Dollar/Canadian 1.2763 1.2711 +0.42% +0.95% +1.2769 +1.2707

Aussie/Dollar $0.7142 $0.7244 -1.40% -1.74% +$0.7268 +$0.7135

Euro/Swiss 1.0247 1.0333 -0.83% -1.18% +1.0347 +1.0245

Euro/Sterling 0.8423 0.8410 +0.15% +0.27% +0.8441 +0.8398

NZ $0.6595 $0.6635 -0.59% -3.64% +$0.6635 +$0.6584

Dollar/Dollar

Dollar/Norway 9.1360 8.9595 +1.89% +3.63% +9.1360 +8.9450

Euro/Norway 9.7933 9.6683 +1.29% -2.19% +9.7966 +9.6594

Dollar/Sweden 9.6901 9.5245 +0.90% +7.45% +9.6923 +9.5142

Euro/Sweden 10.3855 10.2933 +0.90% +1.48% +10.3890 +10.2954

 

(Reporting by Saikat Chatterjee in London and Gertrude Chavez-Dreyfuss in New York; Editing by Catherine Evans, Mark Potter and Jonathan Oatis)

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