The safe-haven dollar climbed to a four-week high versus a basket of currencies on Monday, boosted by worries of a global economic downturn and wagers on the US Federal Reserve raising interest rates further.

Global financial markets continued to digest Friday’s hotter-than-expected US inflation data, which prompted a broad-based decline in risk sentiment and fueled speculation of even more aggressive policy tightening.

Government bonds fell in value on Monday, while stock markets throughout the world fell.

In a report, Brad Bechtel, global head of FX at Jefferies, stated, “The USD extended its gains from Friday as risk continues to unwind across the board,”

The US Dollar Currency Index, which compares the greenback to six other major currencies, was up 0.4 percent at 104.83, close to the two-decade high of 105.01 set in mid-May.

Traders have a busy week ahead of them, with policy meetings from the Fed, the Bank of England, and the Swiss National Bank.

The Federal Reserve of the United States is largely anticipated to raise its benchmark interest rate by 50 basis points on Wednesday, with others, like Barclays and Jefferies, anticipating a 75-basis-point increase.

“A 75 bps (basis points) move is definitely going to be a surprise for some who are holding a hard line on 50 bps,” Bechtel said, adding that he expects the dollar index will gain as a result of such a move.

One major currency that climbed against the dollar on Monday was the battered Japanese yen, which was trading at lows versus the greenback not seen since 1998.

The yen received some support on Monday from remarks from Japan’s top government spokeswoman, who said that Tokyo is worried about the currency’s steep decline and is prepared to “respond appropriately” if necessary.

So far, the Bank of Japan (BoJ) has resisted calls to tighten policy, therefore weakening the country’s currency.

The dollar was 0.6 percent down at 133.58 yen on Monday.

The Australian dollar, which is considered a liquid proxy for risk appetite, sank 1.3 percent, while the New Zealand currency lost 1.4 percent.

Sterling sank to a one-month low versus the dollar on Monday, under pressure from data showing Britain’s economy shrank unexpectedly in April. Tensions between the United Kingdom and the European Union about post-Brexit trade with Northern Ireland also weighed on the pound, which fell 1.1 percent to $1.2175.

Bitcoin fell 19.1 percent on Monday when Celsius Network, a prominent U.S. cryptocurrency lending firm, halted withdrawals and transfers citing “extreme” circumstances, in the latest evidence of how financial market volatility is wreaking havoc in the cryptosphere.

Source: Reuters

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