The dollar climbed to its highest levels in two decades on Monday as a combination of rising U.S. Treasury yields and a tightening lockdown in China boosted the safe haven appeal of the greenback.
Against a basket of major currencies, the dollar =USD topped 104.19 for the first time since July 2002, extending its almost 9% rise this year.
The dollar's rise has been aided by a relentless march higher in U.S. Treasury yields. On Monday, yields on ten-year benchmark debt hit 3.18% for the first time since Nov 2018. They have doubled over the past two months.
"It is hard to go against the current momentum for higher yields and U.S. dollar strength in the near term," Mizuho strategists said in a daily note.
Even though the peak in U.S. interest rates in the current hiking cycle is seen at around 3.5% in mid-2023, the speed of the Federal Reserve's rate hiking cycle is far greater than its peers at the Bank of England and the European Central Bank.
That is evident in the euro zone where recent hawkish comments by policymakers have prompted investors to start repricing rate expectations even though projected rate hikes in Europe will lag the United States by a big margin.
Money markets expect the United States to raise interest rates by another 200 bps during the remainder of the year, taking benchmark rates to nearly 3%, while a projected 92 bps of hikes by the ECB will just take its benchmark deposit rate into positive territory. IRPR
The Fed hiked its benchmark funds rate by 50 basis points last week and strong jobs data has reinforced bets on further big hikes, with inflation figures due on Wednesday in focus as next risk of an upside surprise.
The growth sensitive Australian dollar AUD=D3 fell 1% to $0.6999, its lowest since February. Sterling GBP=D3 and the New Zealand dollar NZD=D3 hit 22-month lows, while the euro and yen were barely above recent major troughs.
Cryptocurrencies have been battered in the rush from risky assets and bitcoin BTC=BTSP was nursing weekend losses and near its lowest levels of the year at $33,500 while ether ETH=BTSP , which fell 4% on Sunday, was at $2,440.
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