By Geoffrey Smith

Investing.com — The dollar was higher in early trading in Europe on Monday, riding a fresh wave of risk aversion as new economic data pointed to a sharp economic slowdown in China.

As of 03:10 ET (0710 GMT), the was up 0.4% at 103.41, less than half a percent of the 20-year high it had recorded last week.

The latest leg of the rally reflects on the one hand the expectation of a half-point hike in US official interest rates on Wednesday at the Federal Reserve’s regular policy meeting, which pushed US bond yields higher. Friday, making the dollar more attractive. Some also expect the Fed to announce that it will reduce its bond holdings faster than expected.

On the other hand, the news also reflects dismay at China’s official rate, which fell to 47.4 in April, its lowest level in two years, due to COVID-19 lockdowns, especially in Shanghai.

The “drop in production and demand” has deepened, the authorities said in their statement.

The news sent the dollar up another 0.5% against 6.6730, as a brief rebound of relief on Friday after promises of increased policy support were quickly quashed.

The has also come under pressure from developments in bond markets, with expectations of Fed hikes contrasting sharply with messages from the European Central Bank, whose top officials still seem reluctant to commit to raising interest rates. in July. Chief Economist Philip Lane and Vice President Luis de Guindos left a lot of ambiguous statements on the subject in their latest comments.

The euro was not helped by surprising weakness in March, the first full month of data reflecting the impact of the war in Ukraine on consumer confidence in the region. Retail sales fell 0.1% on the month and 2.7% on the year.

The euro was also suffering jitters ahead of an emergency meeting of EU energy ministers later on Monday, which will discuss a gradual embargo on Russian oil to punish the Kremlin for its invasion of Ukraine. The impact is likely to make energy supplies more expensive even in a base case scenario, but analysts fear it could also trigger a unilateral cut in supplies to Europe that would be much harder to replace in the short term. term.

Trade in Europe was weakened by the closure of the region’s biggest financial centre, London, and a number of other markets for a bank holiday. was stable against the dollar at $1.2570.