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The dollar is approaching pandemic levels as investors seek safety.

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The dollar list is up 4% this month, while the euro, yuan, and yen have fallen as merchants bet that loan fees will rise quicker in the United States than in some other significant economy.

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.

Data also showed that China’s industrial profit growth accelerated in March. 

Australian Bounce Later in the day, US earnings are likely to set the tone across financial markets, ahead of US growth data due on Thursday, where a strong showing could reinforce bets on rates rising sharply at the Federal Reserve’s May meeting.

Commodity currencies have also sold recently in favour of the safety of the US dollar, bringing the New Zealand dollar close to its year-low of $0.6562. 

The Australian dollar gained ground after consumer prices rose at the fastest annual rate in two decades, fueling speculation that interest rates could be raised from record lows as soon as next week. The Australian dollar rose as much as 0.6% to $0.7171.

Elsewhere, the stronger dollar hampered the yen’s attempted rebound, which had received some support from safety flows and positioning for the risk of a policy shift. The yen was last trading at 127.60 per dollar, down about 0.3%.

The Bank of Japan meets on Wednesday and Thursday, and markets anticipate some revisions to forecasts or even policy changes to try to halt the currency’s recent weakness.

The South Korean won fell to a two-year low after North Korea pledged to increase its nuclear arsenal. 

Sterling fell more than 2% against the dollar this week as weak retail sales data prompted a rethinking of Britain’s rate outlook, hitting a new 21-month low of $1.2560 on Wednesday. 

Bitcoin fell to a six-week low of $38,430 on Tuesday as investors fled risky assets.