United States dollar banknotes are displayed in this February 14, 2022 photo illustration. REUTERS/Dado Ruvic
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SINGAPORE, May 9 (Reuters) – The dollar started the week on a strong footing, buoyed by sharply rising US yields and investor bias for safety as lockdowns in China, war on the fringes of Europe and fears of higher interest rates unite triggered a nervous jolt through the markets.
The greenback hit a 22-month high against the growth-sensitive New Zealand dollar in early trade and rose more than 0.5% against the Aussie to a three-month high as US stock market futures fell 1%.
The benchmark 10-year Treasury yield stood at 3.1464%, its highest since 2018, and at 130.73 yen, the dollar is just a hair away from a new two-decade high.
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The dollar is close to a five-year high against the euro, which fell 0.2% to $1.0529. Sterling hovered just below last week’s two-year lows after the Bank of England warned that the UK economy was on the brink of recession.
“The dollar is supported by US economic performance and weaker stock prices,” said Joe Capurso, strategist at the Commonwealth Bank of Australia in Sydney.
“Despite significant rate hikes, financing conditions have not tightened significantly in major economies…the need to tighten financing conditions and contain inflation argues for further significant rate hikes.”
The US dollar index gained for the fifth straight week last week, hitting a near 20-year high after the US Federal Reserve hiked interest rates by 50 basis points and strong jobs data increased bets of more big hikes.
The index was last at 103.78. Futures markets are pricing in a 75 percent chance of a 75 basis point rate hike at the next Fed meeting in June and more than 200 basis points tightening by year-end.
US inflation data due on Wednesday could spur even more aggressive bets, especially if the pace of headline price increases doesn’t slow to 8.1% as expected.
“Risks around US CPI feel binary; an 8.5% decline would be mildly reassuring, but a rise would undoubtedly revive expectations for a 75 basis point Fed hike and likely give a boost to the dollar,” analysts at ANZ Bank said.
“The idea that synchronized global tightening could proceed smoothly feels like a forgotten dream now as reality bites volatility.”
Cryptocurrencies took a hit on a rush of risky assets, and bitcoin posted losses over the weekend, nearing its year-low at $34,000, while ether, which fell 4% on Sunday, was at $2,525.
At the same time, the war in Ukraine is disrupting global commodity markets and lockdowns in China are slowing growth. Continue reading
Unemployment in China last month hit its highest level since March 2020 and the yuan was pressured near an 18-month low at 6.7319 per dollar in offshore trading.
Currency bid prices at 0041 GMT
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Reporting by Tom Westbrook; Editing by Sam Holmes
Our standards: The Thomson Reuters Trust Principles.
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