The dollar has stabilised near a two-year high
The dollar has stabilised near a two-year high

The dollar recovered in early European trade Tuesday, but remained near a two-year high as traders worried about the impact of China's COVID lockdowns on global growth as the Federal Reserve prepares for more aggressive tightening.

The Dollar Index, which measures the value of the dollar against a basket of six other currencies, was slightly higher at 101.787 at 3:15 a.m. ET (0715 GMT), after touching a two-year high of 101.86 overnight.

This month, the index has gained about 3%, which would be its best month of gains since November 2015.

"Risk-off transactions rule world markets at the start of a new financial year, as investors become concerned about the prospects for the Chinese economy due to rising concerns about Chinese lockdowns." world's second-largest economy." "It's been a week," Kevin Beckham, a financial consultant, remarked.

After a handful of cases were detected in the Chinese capital, the COVID-19 lockdown in Shanghai has been in place for about a month, and fears are increasing that these draconian measures may be expanded with a mass-testing effort already underway in Beijing's most populous area.

The IMF cut China's growth forecast for this year to 4.4 percent, well below Beijing's target of around 5.5 percent, citing the dangers of widespread COVID-19 lockdowns.

The likelihood of significant rate hikes by the Federal Reserve this year, starting with an anticipated 50 basis point hike at the central bank's next meeting in May, is also helping the dollar.

After the People's Bank of China announced it will reduce the amount of foreign exchange banks must retain as reserves, the USD/CNY fell 0.2 percent to 6.5451, recovering from a year high reached on Monday.

With commodities prices being weighed down by Chinese lockdowns, the AUD/USD climbed 0.4 percent to 0.7208, rebounding from a two-month low overnight.

The USD/JPY dipped 0.2 percent to 127.87, reversing last week's 20-year low of 129.40, while the GBP/USD fell 0.2 percent to 1.2735.

The EUR/USD fell 0.1 percent to 1.0708, just above the two-year bottom of 1.0697 set on Monday, with even French President Emmanuel Macron's re-election failing to boost the single currency.

"A stronger dollar, risk-off trades, geopolitical uncertainty, a hawkish Fed, concerns about energy security in the EU, and mounting economic fears in the area are all putting pressure on the euro," Beckham added. "In other words, big gains in the euro seem unlikely in the near term."