By Peter Nurse
Investing.com - The U.S. dollar climbed higher in early European trade Monday, gaining ground even against the euro despite Emmanuel Macron’s win in the French presidential election as traders sought out this safe haven.
At 3:05 AM ET (0705 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher at 101.625, climbing to levels last seen in late 2016.
French President Emmanuel Macron claimed an election victory over his far-right rival Marine Le Pen on Sunday, providing the euro with a small boost as the result provided stability within the European Union, avoiding the promotion of a deeply eurosceptic politician.
However, any gains for the single currency were short-lived as traders turned to the safety of the dollar due to uncertainties over the global growth outlook as the U.S. Federal Reserve tightens monetary policy.
“The U.S. dollar is having a good month,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “Against the euro and yen, it is appreciating for the fourth consecutive month. Rising rates continue to appear to be the main driver. The divergence of monetary policy is palpable.”
Federal Reserve Chairman Jerome Powell last week pointed to the possibility of a 50 basis point rate hike at the central bank’s next meeting in May, speeding up its monetary policy tightening after hiking by 25 basis points in March.
By contrast, Japan’s central bank has been sticking rigidly to its very accommodative stance, while Europe, and thus the euro, is more exposed to the stagflationary forces emerging from the war in Ukraine.
The International Monetary Fund recently cut its forecast for Eurozone growth this year to 2.8% from 3.9%. The bloc will publish its first estimate of first quarter GDP on Friday, and it is expected to have risen by 0.3% quarter-over-quarter.
USD/JPY traded 0.4% lower to 128.09, edging back from its highest level in 20 years, with the dollar having gained around 11% versus the yen so far this year.
EUR/USD dropped 0.6% to 1.0727, dropping to a new two-year low after initially opening higher.
Elsewhere, USD/CNY rose 0.8% to 6.5518, climbing to a new one-year high, as the ongoing COVID-19 outbreak prompted concerns over the economic growth outlook of the world’s second largest economy.
China’s capital Beijing reported over the weekend dozens of COVID-19 cases, prompting concerns of a prolonged strict lockdown akin to that in the financial hub of Shanghai.
GBP/USD fell 0.9% to 1.2732, with last week’s disappointing British retail sales and consumer confidence data pointing to a possible slowdown in the Bank of England’s tightening cycle.