The U.S. dollar scaled two-year peaks, as a wave of risk aversion hit global markets, while the Chinese yuan posted its largest three-day losing streak in nearly four years on growing worries of an economic slowdown in the worlds second-largest economy.
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 rose to 101.86, a level it last tested in March 2020. It was last at 101.76, up 0.7%, its largest daily percentage gain since March 11.
“The dollar is increasingly in vogue given the dimmer outlook for the world economy, coupled with the Federal Reserves ever assertive rhetoric about big rate hikes to help it tame inflation,” said Joe Manimbo, senior market analyst, at Western Union Business Solutions, in Washington.
“China‘s struggle to contain the COVID-19 is adding to risk aversion that’s partly behind the dollars dominance,” he added.
Chinas yuan fell to a one-year low against the dollar and was last down 0.9% at 6.5615 yuan per U.S. dollar.
The People‘s Bank of China on Monday said it would cut the FX reserve requirement ratio (RRR) by 100 basis points to 8% beginning May 15, to “improve financial institutions’ ability to use foreign exchange funds”, according to an online statement. It was a move aimed at slowing the depreciation of the yuan.
“We expect this RRR cut to slow down CNY depreciation in the near term, though it would also depend on the broad U.S. dollar path and overall sentiment towards Chinese growth,” said Goldman Sachs in a research note.
The Aussie, which was one of the biggest gainers in currencies in the first quarter of 2022 thanks to surging commodity prices, fell broadly. It dropped 0.9% against the U.S. dollar to US$0.7176 and fell 1.4% versus the Japanese yen to 91.88 yen.
The Norwegian crown also fell nearly 2% versus the U.S. dollar, which last traded up at 9.1250.
Broader currency market volatility gauges ticked higher, with an index rising to its highest levels in more than a month.
BofA Securities strategists said 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 faded, with the single currency down 0.9% at $1.0717, 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 3:44PM (1944 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 101.6700 101.0800 +0.60% 6.279% +101.8600 +101.0500
Euro/Dollar $1.0717 $1.0810 -0.86% -5.73% +$1.0852 +$1.0697
Dollar/Yen 128.0100 128.5000 -0.39% +11.18% +128.8550 +127.5250
Euro/Yen 137.18 138.78 -1.15% +5.26% +139.1900 +136.4900
Dollar/Swiss 0.9585 0.9565 +0.23% +5.10% +0.9597 +0.9548
Sterling/Dollar $1.2740 $1.2840 -0.77% -5.79% +$1.2880 +$1.2697
Dollar/Canadian 1.2719 1.2711 +0.06% +0.59% +1.2777 +1.2707
Aussie/Dollar $0.7177 $0.7244 -0.94% -1.28% +$0.7268 +$0.7135
Euro/Swiss 1.0270 1.0333 -0.61% -0.95% +1.0347 +1.0245
Euro/Sterling 0.8410 0.8410 +0.00% +0.12% +0.8441 +0.8398
NZ $0.6620 $0.6635 -0.23% -3.29% +$0.6635 +$0.6584
Dollar/Dollar
Dollar/Norway 9.1285 8.9595 +1.90% +3.64% +9.1745 +8.9450
Euro/Norway 9.7842 9.6683 +1.20% -2.28% +9.8235 +9.6594
Dollar/Sweden 9.7144 9.5245 +1.13% +7.72% +9.7461 +9.5142
Euro/Sweden 10.4099 10.2933 +1.13% +1.72% +10.4374 +10.2954
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London; Editing by Jonathan Oatis and Alistair Bell)