Por Peter Nurse
Investing.com – The US dollar posted further gains at the start of European trading on Wednesday, hitting a two-year high on safe-haven flows, as traders digest slowing global growth, rising geopolitical tensions and the prospect of further monetary tightening by the Federal Reserve.
At 9:15 AM ET, the , which tracks this currency against a basket of six other majors, is up 0.2% at 102.532, its highest level since March 2020 and on track to its best month since 2015.
Russia has announced plans to stop the flow of gas to Poland and Bulgaria from Wednesday following a standoff over fuel payments, benefiting the safe-haven dollar.
Russian President Vladimir Putin has decreed that payments from “unfriendly” buyers must be made in rubles, helping to support his country’s battered currency, while the European Union has countered that this would be a violation of the sanctions.
These rising tensions have added to the reasons why traders have chosen to hold the greenback, as China’s strict COVID-19 lockdown is likely to weigh on economic growth in the world’s second largest economy, while The Federal Reserve is expected to raise interest rates by 50 basis points in May as it tries to combat inflation, which is at its highest point in four decades.
The pair fell 0.2% to the 1.0618 level, hitting a five-year low, on fears over Europe’s energy security, and also weighed down by the weak index reading, which is expected to record historical lows in May.
“April has been a nasty month for the euro, which has fallen by more than 300 points. The war in Ukraine and the Fed’s aggressiveness have been a toxic mix for the euro, as investors have dumped the currency and have gone to the shelter of the US dollar,” explains Kenny Fisher, an analyst at brokerage OANDA.
The pair is up 0.5% to the 127.81 level, not far off its recent 20-year lows, and the Bank of Japan is due to meet in the next few hours.
This central bank has maintained a very accommodative monetary stance, in direct contrast to the Fed’s aggressiveness, but traders believe there is a risk of changes in monetary policy to try to stem the recent weakening of the currency.
The pair rises to the 1.2577 level, hitting fresh 21-month lows, as last week’s weak retail sales data prompted a rethink of the Bank of England’s tightening cycle.
“Tightening expectations at the Bank of England meeting on May 5 have been lowered to 29 basis points, down from 38 basis points early last week,” ING (AS:) analysts say in a note. .
The pair slipped to the 6.5555 level as the yuan was helped by data showing that Chinese industrial profit growth accelerated in March, while the yuan rose 0.5% to 0, 7159 after Australian consumer prices rose at their fastest annual pace in two decades, spurring speculation of a rate hike.