(Rewrites throughout; changes byline; previous LONDON)
The dollar hit a two-year high on Tuesday as concerns about slowing growth in China and expectations that the Federal Reserve will aggressively hike rates boosted demand for the greenback.
The Japanese yen also rebounded as investors speculated that the Japanese central bank or government may act to stabilize the currency, which last week hit a 20-year low against the dollar.
Concerns about Chinese growth have increased with the financial hub of Shanghai having been under strict lockdown to fight COVID for around a month. Beijing overnight also ramped up plans for mass-testing of 20 million people and fuelled worries about a looming lockdown.
Chinese growth concerns are "adding fuel to the fire that is dollar strength," said Erik Nelson, a macro strategist at Wells Fargo in New York.
The Wall Street Journal also on Tuesday reported that Chinese President Xi Jinping has told officials that he wants China’s economic growth to outpace the United States' this year.
That may be slower than previously expected. China last month targeted economic growth of around 5.5% this year.
"Consensus for U.S. GDP growth this year is just barely above 3%, so that’s a huge, huge downgrade in terms of a growth target," said Nelson.
The dollar index against a basket of currencies =USD was last up 0.25% at 101.94, after earlier reaching 102.04, the highest since March 2020.
The offshore yuan CNH=D3 was holding just below a 17-month low reached on Monday, after China's central bank eased banks' foreign exchange holding requirements in an effort to stem the currency's drop.
The euro EUR=EBS fell 0.35% to $1.0675, after earlier reaching $1.0663, the lowest since March 2020.
The single currency has been hurt by the economic impact of the war in Ukraine and by expectations the European Central Bank will move more slowly than the Fed in raising interest rates. The U.S. central bank is expected to raise rates by 50 basis points when it meets next week, and again in June and July.
Fed funds futures traders expect the Fed’s benchmark rate to rise to 2.66% by year-end, from 0.33% today. FEDWATCH
The dollar dropped 0.80% against the Japanese yen JPY=EBS , on what appeared to be short-covering before the Bank of Japan concludes its two-day meeting on Thursday.
"There is a shift in sentiment and some concern in the market that officials are concerned about weakness and may take some measures," said Neil Jones, head of FX sales, Financial Institutions at Mizuho in London.
Investors will be watching to see if the BOJ makes any changes to its yield curve control policy.
Japanese Prime Minister Fumio Kishida said on Tuesday that the government will aim to stabilise the currency with economic policy that reduces outflows of domestic income and boosts inflows of funds, but noted that the government must look at both the positive and negative impact a weak yen could have on the economy.
The Japanese currency also gained in line with a drop in U.S. Treasury yields on Tuesday.
The British pound GBP=D3 dipped 0.44% to $1.2684, after earlier reaching $1.2670, the lowest since July 2020.
Bitcoin BTC=BTSP dipped 1.66% to $39,789 and ether ETH=BTSP fell 2.24% to $2,938.
======================================================== Currency bid prices at 9:53AM (1353 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 101.9400 101.7000 +0.25% 6.562% +102.0400 +101.5000 Euro/Dollar EUR=EBS $1.0675 $1.0713 -0.35% -6.10% +$1.0738 +$1.0664 Dollar/Yen JPY=D3 127.0650 128.0850 -0.80% +10.47% +128.1950 +127.0400 Euro/Yen EURJPY= 135.63 137.24 -1.17% +4.07% +137.5300 +135.6200 Dollar/Swiss CHF=EBS 0.9578 0.9596 -0.18% +5.00% +0.9603 +0.9565 Sterling/Dollar GBP=D3 $1.2684 $1.2740 -0.44% -6.21% +$1.2772 +$1.2670 Dollar/Canadian CAD=D3 1.2810 1.2738 +0.59% +1.34% +1.2813 +1.2685 Aussie/Dollar AUD=D3 $0.7180 $0.7180 +0.01% -1.21% +$0.7229 +$0.7172 Euro/Swiss EURCHF= 1.0222 1.0276 -0.53% -1.40% +1.0290 +1.0213 Euro/Sterling EURGBP= 0.8414 0.8408 +0.07% +0.17% +0.8425 +0.8394 NZ NZD=D3 $0.6611 $0.6622 -0.10% -3.35% +$0.6645 +$0.6610 Dollar/DollarDollar/Norway NOK=D3 9.1865 9.1230 +0.79% +4.38% +9.2025 +9.0800 Euro/Norway EURNOK= 9.8070 9.7685 +0.39% -2.06% +9.8420 +9.7433 Dollar/Sweden SEK= 9.7573 9.7070 +0.15% +8.21% +9.7743 +9.6881 Euro/Sweden EURSEK= 10.4173 10.4017 +0.15% +1.79% +10.4475 +10.3754
