FOREX-Dollar hits two-decade high on interest rates fears

SINGAPORE Reuters -- The two-decade high was hit on Monday as investors searched for safety and yield in the face of growing concerns over slowing global economic growth and rising interest rates.

The soaring inflation, the war in Ukraine, and tighter lockdowns against COVID 19 in Beijing and Shanghai have left investors uncertain on many counts, but they are certain that the U.S. interest rates are going up, and that has been followed by the war in Ukraine.

The index, which measures the dollar against six major currencies, has gone up nearly 9% this year and has hit its highest since late 2002 on Monday at 104.090.

The Australian dollar's growth sensitive fell 1% to $0.6999, its lowest since February. In a note from NatWest, strategists said that the move in U.S. interest rates is not the only dollar support.

There are more downside risks to global growth stemming from Ukraine and are more pressing for Europe and Asia relative to the U.S. creating an air of 2018-style dollar exceptionalism. The dollar went ahead against other havens, commodity currencies, and emerging market currencies because of the dollar's gains against sliding stockmarkets.

It has gone up 0.3% since 2019 on the Swiss franc. It was up 0.4% and close to a two-decade high at 131.00 yen and tested recent peaks at $1.0508 per euro.

Weighed by the Bank of England's gloomy outlook, sterling fell 0.5% to its lowest since mid 2020, at $1.2268. The Canadian dollar has hit its lowest level since December.

Trade data showed that imports fell in April and exports rose 3.9%.

That was a little better than expected but proved little help for the yuan, which was dragged to a new 18 month low of 6.7260 per dollar as lockdowns in Shanghai were tightened.

The economic downturn in China's economy is seen by traders as a result of the inevitable drag on the region.

The kiwi fell by 0.9% to $0.6346 and the US dollar made multi-year highs on the trade sensitive Taiwan dollar, South Korean won, Singapore dollar and Malaysian ringgit.

It hit its highest level in nine months against the Indonesian rupiah.

The yield on benchmark 10 year U.S. government bonds has climbed 163 basis points this year and taken the dollar with it.

Market sentiment was hurt by speculation that Russian President Vladimir Putin might declare war on Ukraine in order to call up reserves during his speech at Victory Day celebrations.

Putin has characterised Russia's actions in Ukraine as a military operation, not a war or an invasion.

The U.S Federal Reserve hiked its benchmark funds rate by 50 basis points bps last week and strong jobs data reinforced bets on further hikes, with inflation figures due on Wednesday in focus as the next risk of an upside surprise.

Futures are pricing for a 75% chance of a 75 bp rate rise at the Fed's next meeting in June and more than 200 bps of tightening by the end of the year.

The risks around the U.S. CPI feel binary, a moderation from 8.5% would be mildly comforting, but a lift would doubtless revive expectations for 75 bps Fed hikes, and probably give the dollar a boost, said analysts at the ANZ Bank.

The idea that global tightening might proceed gently feels like a forgotten dream. The rush from risky assets has battered cryptocurrencies, and bitcoins have suffered weekend losses and near its lowest level of the year, at $33,500, while ether, which fell 4% on Sunday, was at $2,440.