HONG KONG- The dollar held near a two-year peak on Tuesday as concerns about the economic impact of China’s COVID-19 lockdowns held up the greenback’s safe-haven appeal and aggressive US interest rate hike expectations kept bond yields elevated.
The dollar index, which measures the greenback against six main peers, was 0.13 percent lower at 101.59 after hitting a two-year peak of 101.86 overnight.
It has gained 3.3 percent so far this month, which would be its largest month of gains since November 2015.
“Further (dollar index) upside remains a good bet. China growth risks are rising as authorities pursue an aggressive COVID campaign, conditions around Ukraine remain volatile and ‘Fed-speak’ remains as hawkish as ever,” said analysts at Westpac in a note.
China’s financial hub of Shanghai has now been under strict lockdown to fight COVID for around a month, while Beijing overnight ramped up plans for mass-testing of 20 million people and fuelled worries about a looming lockdown.
Hawkish comments by various central bank policymakers last week also raised the prospect of aggressive interest rate hikes. The most significant of these came from the US Federal Reserve, which markets expect to raise rates by a half point at each of its next two meetings.
China’s offshore yuan was slightly higher however, at 6.5572 per dollar after the People’s Bank of China said late on Monday it would cut the amount of foreign exchange banks must hold as reserves.
