US recap: Risk aversion fuels dollar, sends EUR/USD below parity

Aug 22 (Reuters) – The dollar rallied on Monday as China’s rate cut served as a reminder of the vulnerabilities of the world’s second largest economy and Europe’s energy woes also weighed on investor sentiment, sending safe-haven flows to the US currency.

The dollar index was heading toward the US close up 0.75% as risk was significantly hit, with the S&P 500 falling nearly 2%, and currencies not seen as top safe havens suffered.

Adding to the dollar bid were price rises for natural gas and expectations that Fed Chair Jerome Powell will add his voice to the chorus of US policymakers touting a higher-for-longer rate path to fight inflation, which remains well above the 2% target with no prospects of returning soon.

EUR/USD fell 1.03% to 0.9936, putting in a new trend low at 0.9927 amid the broad global growth anxieties and high gas prices, which have exacerbated European growth uncertainties.

USD/JPY gains were tempered since both the dollar and yen are safe havens and thus benefited from the broad trend of risk aversion, but it still managed to advance 0.25% to 137.36, with US-Japan rate divergence likely to result in new 2022 highs above 139.38 after the upcoming Jackson Hole symposium.

GBP/USD put in a new 2022 low at 1.1744, bouncing slightly to 1.1770 as the NorAm close approached.

GBP/USD has been dogged by Britain’s G7-high inflation, which has also increased UK recession fears.

AUD/USD backed off early US gains and headed toward a loss of about 0.1% to 0.6866. US yield gains and China growth concerns were too much for aussie bulls to withstand as copper and oil held losses.

Broad risk-off trading and rising US rates weighed on bitcoin and ether, which fell slightly more than 1%. Higher rates also pushed gold lower by 0.65%.

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are his own.)