The dollar is approaching pandemic levels as investors seek safety.
On Wednesday, the dollar reached its highest level since the early days of the pandemic and was on track for its best month since 2015, boosted by the prospect of US rate hikes and safe-haven flows fueled by slowing growth in China and Europe.
In the Asia session, the US dollar index, which measures the greenback against a basket of six major currencies, rose to 102.39, its highest level since March 2020.
Meanwhile, concerns about Europe’s energy security drove the euro to a five-year low of $1.0635 after Russia’s Gazprom announced a reduction in gas supplies to Poland and Bulgaria.
“The dollar is currently the market’s hedge, while commodities such as gold are no longer as effective,” according to Citi analysts.
“The dollar is a ‘quality carry,'” they continued. “The dollar also provides a higher yield than any other safe haven FX alternative.”
Even if the Fed stops tightening in June 2022, the US is expected to have higher rates than Europe throughout 2023, according to Deutsche Bank strategist Alan Ruskin.
The significance of this as a driver of currency movements has only grown as uncertainty surrounds the Ukraine conflict, which is now in its third month, as well as the global consequences of China’s persistence with disruptive Covid-zero policies.
The Chinese yuan chilled out after a lofty downfall that seems to have been endorsed by specialists, settling at 6.5575 per dollar.
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