Dollar rises as China COVID worries spook markets

NEW YORK, Nov 21 (Reuters) – The U.S. dollar rose against most major currencies on Monday, recovering recent losses, as fresh COVID-19 outbreaks in China stoked concerns about the economic outlook global and forced traders to avoid riskier currencies.

China’s capital warned on Monday that it was facing its toughest test of the COVID-19 pandemic, closing businesses and schools in hard-hit areas and tightening rules on entering the city as infections surged tick higher in Beijing and nationally.

The new cases cast doubt on hopes that the government could soon ease its strict restrictions. That boosted the dollar, which is seen as a safe haven in times of stress.

The dollar rose 1.2% against the Japanese yen to ¥142.085, on pace for its biggest one-day gain since September 6. The euro fell 0.86% per retracement to $1.0235.

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“Today, all eyes are on China and its Zero COVID policy. Traders are worried that China could expand its restrictions that could slow growth and threaten higher inflation,” said John Doyle, vice president on dealing and trading at Monex USA.

“The concern is seen across asset classes,” Doyle said.

The Chinese yuan opened at 7.1451 per dollar and weakened to a low of 7.1708, the softest level since November 11.

As investors took a bearish view of riskier currencies, the Australian dollar, seen as a liquid proxy for risk appetite, sank 1.1% to a 1-week low of $0.66.

​​​​The dollar received additional support after San Francisco Federal Reserve President Mary Daly said on Monday that the US central bank could raise its overnight target rate above 5% if inflation does not cool, even though it thought that was not the result she had hoped for from monetary policy.

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Analysts also put up some of the dollar’s strength after the sharp adjustment over the past few weeks that left the Dollar Index as high as 4.7% in November.

“I view the dollar’s rally this morning as a reflection of recent weakness, rather than a sign that anything is changing,” said Kit Juckes, chief FX strategist at Societe Generale.

Cooler-than-expected US inflation data fueled investors’ hopes that the Federal Reserve’s interest rate hike could be set to be moderated. That prompted traders to take profits on long dollar positions.

Speculators’ bets on the US dollar went short for the first time in more than a year, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday. Read more

The dollar index is up about 12% for the year.

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Investors will be parsing minutes from the Fed’s November meeting, due to be released on Wednesday, for any clues about the outlook for interest rates.

On Monday, the stronger dollar weighed on Sterling with the British currency slipping 0.5% to $1.18225 against a strengthening US dollar as investors braced for further weakness in the pound ahead of due public finance data Tuesday and flash PMI numbers on Wednesday.

Elsewhere, cryptocurrencies remained under pressure, with bitcoin down about 3% to $15,740, after touching a 2-year low of $15,588 earlier in the session.

The crypto industry continues to reel from the high-profile collapse of crypto exchange FTX, which owes its top 50 creditors nearly $3.1 billion, according to bankruptcy filings.

Reporting by Saqib Iqbal Ahmed, Editing by William Maclean and Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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