Flight to Quality Drives US Dollar to Two-Year Highs; Aussie crumbles

U.S. dollar banknotes are shown in this illustration taken February 14, 2022. REUTERS/Dado Ruvic/Illustration

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LONDON, April 25 (Reuters) – The U.S. dollar hit a two-year high against its rivals on Monday and was on course for its biggest single daily gain in more than six weeks as a wave of… Risk aversion was sweeping global markets, boosting the greenback’s appeal as a safe haven.

As the war in Ukraine enters its third month and the lockdown of 25 million people in Shanghai is about to enter a second month, investor sentiment was fragile amid fears that rising prices to consumption leads to a rapid rise in global interest rates.

Against a basket of its rivals, the dollar gained 0.6% in early trading in London to 101.62, a level it last tested in March 2020 and on track for its stronger daily increase since March 11.

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“The week begins with a firmly negative tone in global markets, which discount a combination of a) many central banks accelerating their tightening plans, b) Russia and Ukraine moving further away from a diplomatic solution, c ) China’s Covid crisis which is forcing a reassessment of growth expectations in the region,” ING strategists said in a note.

The euro’s minimal gains after news of French President Emmanuel Macron’s comfortable election victory over his far-right rival Marine Le Pen quickly dissipated, with the single currency falling 0.8% to $1.0729 .

Commodity currencies received special punishment as the dollar soared, with the Australian dollar and New Zealand dollar the main losers.

The Aussie, which was one of the biggest currency gainers in the first quarter of 2022 thanks to soaring commodity prices, has fallen significantly. It weakened more than 1% against the US dollar and fell by a similar margin against the Swiss franc.

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

The Chinese yuan fell to its lowest level in a year, extending losses after posting its worst week since 2015, as investors worry about deteriorating economic growth prospects due to strict COVID-19 measures and shutdowns across the country.

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Reporting by Saikat Chatterjee; Editing by Catherine Evans

Our standards: The Thomson Reuters Trust Principles.

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