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The U.S. dollar soared to a two-decade high in early European trade Monday, with traders seeking out this safe haven amid concerns about global economic growth as well as searching for yield. 

At 2:50 AM ET (0650 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, gained 0.5% to 104.170, rising to levels not seen in 20 years after rising for a fifth week in a row last week.

The war in Ukraine and tighter lockdowns against COVID-19 in Beijing and Shanghai have created uncertainty over economic growth in Europe and Asia.

This week sees the release of Germany’s ZEW sentiment index and preliminary first quarter GDP data from the U.K., and these are likely to point to slowing growth in two of Europe’s largest economies.

Data earlier Monday from China showed the country’s export growth slowed to single digits in April, growing 3.9% in April from a year earlier, compared with the 14.7% growth reported in March. The growth was the slowest since June 2020.

By contrast, data released on Friday showed that U.S. nonfarm payrolls increased 428,000 in April, more than expected. This suggests the demand for labor remains strong, with businesses scrambling to hire enough workers to keep up with resilient consumer demand.

EUR/USD fell 0.4% to 1.0509, marginally above its recent low of 1.0469, USD/JPY rose 0.4% to 131.12, at a two-decade high, while GBP/USD fell 0.5% to 1.2277, at a new 22-month low, despite the Bank of England’s decision to lift interest rates on Thursday for the fourth meeting in a row.

“One of the big differences between the Fed and the BoE is that U.S. inflation is more domestically generated from tight labor markets and the huge fiscal stimulus seen over recent years,” said analysts at ING, in a note.

The U.S. Federal Reserve last week announced a 50 basis point hike, its largest increase since 2000, and the yield on benchmark 10-year U.S. government bonds has continued to climb ahead of Wednesday’s inflation figures on fears of an upside surprise.

Futures markets are pricing a 75% chance of a 75 bp rate rise at the Fed’s next meeting in June and more than 200 bps of tightening by year’s end.

Policy members at the European Central Bank have also started talking more openly about hiking rates, with Austrian central bank governor Robert Holzmann, a known hawk, stating in a newspaper interview over the weekend that the central bank should raise interest rates as many as three times this year to combat inflation.

However, “given that around 90bp of ECB tightening is already priced by year-end, we do not think a further round of ECB hawkish talk is enough to provide much support to EUR/USD,” added ING.

“Instead, the Fed story and weak growth in Europe and China are likely to see EUR/USD trading on the soft side of a 1.0500-1.0650 range, with risks skewed towards a break down to the 2016 lows of 1.0350.”

Elsewhere, USD/CNY rose 0.8% to 6.7200, at a fresh 18-month low after the country’s trade data and with Covid-19 lockdowns remaining in place, while AUD/USD fell 1.1% to 0.7000, just off January’s low.

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