The dollar started the week on a strong footing buttressed by sharply rising U.S. yields and investors' tilt toward safety as lock downs in China, war on the edge of Europe and fear of higher interest rates sent a nervous jolt through markets.
The dollar was trading at a 22 month high on the growth-sensitive New Zealand dollar in early trade, and rose more than 0.5% on the Aussie to a three month peak, as U.S. stock market futures fell 1%.
The benchmark 10 year Treasury yield was at the highest since 2018 at 3.1464% and 130.73 yen the dollar is a whisker from a fresh two-decade top.
The dollar is close to a five-year high on the euro, which fell 0.2% to $1.0529. The Bank of England warned that Britain's economy was facing a recession, and the sterling hovered just below two-year lows last week.
Joe Capurso, a strategist at the Commonwealth Bank of Australia in Sydney, said the dollar will be supported by U.S. economic outperformance and weaker equity prices.
Financial conditions have not tightened much in the major economies despite material increases in interest rates. The need to tighten financial conditions and rein in inflation underlies the case for significant increases. The U.S. dollar index was up for a fifth week in a row last week and touched an almost 20 year high after the U.S. Federal ReserveFederal Reserve hiked its benchmark funds rate 50 basis points and strong jobs data reinforced bets on further hikes.
The index was last at 103.78. Futures markets are pricing a 75% chance of a 75 bps rate rise at the Fed's next meeting in June and more than 200 bps of tightening by the end of the year.
The U.S. inflation data due on Wednesday could fuel even more aggressive bets, especially if the headline price rises don't fall to 8.1% as expected.
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 as the reality of volatility bites. The rush from risky assets has battered thecurrencies, and bitcoin is nearing its lowest level of the year, at $34,000, while ether fell 4% on Sunday, at $2,525.
At the same time, the brakes are being put on growth as a result of the war in Ukraine disrupting global commodity markets and lockdowns in China.