The U.S. dollar scaled two-year peaks, as a wave of risk aversion hit global markets, while the Chinese yuan posted its largest three-day losing streak in nearly four years on growing worries of an economic slowdown in the world’s second-largest economy.
With war in Ukraine entering a third month and growing concerns of a China-wide COVID-19 outbreak sparking a rout in Chinese stocks, investors dumped currency market darlings like the Australian dollar and the offshore Chinese yuan.
Against a basket of its rivals , the dollar rose to 101.86, a level it last tested in March 2020. It was last at 101.76, up 0.7%, its largest daily percentage gain since March 11.
“The dollar is increasingly in vogue given the dimmer outlook for the world economy, coupled with the Federal Reserve’s ever assertive rhetoric about big rate hikes to help it tame inflation,” said Joe Manimbo, senior market analyst, at Western Union Business Solutions, in Washington.
“China’s struggle to contain the COVID-19 is adding to risk aversion that’s partly behind the dollar’s dominance,” he added.
China’s yuan fell to a one-year low against the dollar and was last down 0.9% at 6.5615 yuan per U.S. dollar.
The People’s Bank of China on Monday said it would cut the FX reserve requirement ratio (RRR) by 100 basis points to 8% beginning May 15, to “improve financial institutions’ ability to use foreign exchange funds”, according to an online statement. It was a move aimed at slowing the depreciation of the yuan.
“We expect this RRR cut to slow down CNY depreciation in the near term, though it would also depend on the broad U.S. dollar path and overall sentiment towards Chinese growth,” said Goldman Sachs in a research note.
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