Dollar steadies as China COVID fears remain

After the dollar eased yesterday's gains, investors turned to the safe-haven currency as they worried about the COVID-19 outbreak in China. At the same time, cautious risk sentiment kept the dollar in demand.

Beijing authorities warned on Monday that the Chinese capital was forced to face one of the most severe tests of the COVID-19 pandemic, Reuters reported. The surge in COVID-19 cases has led to new restrictive measures.

According to Rodrigo Catril, currency strategist at the National Bank of Australia, the popularity of the US dollar as a safe-haven currency is increasing among investors. This is due to the fact that markets are nervous about recent coronavirus outbreaks in China.

As investors kept changing expectations about how high the Federal Reserve will raise rates, the US Treasury yields across maturities rose overnight.

The speeches delivered by the Fed's speakers provided several surprises. For instance, Cleveland Fed President Loretta Mester said that from next month can downshift to smaller interest rate hike increments.

San Francisco Fed President Mary Daly said the real impact of raising interest rates is likely greater than what the short-term interest rate target implies.

A note from ING economists confirms the Fed's comments are consistent with the recent slant of rhetoric.