The dollar roared to a two-year high on Tuesday and the euro hit its weakest since March 2020 as concerns about the economic impact of China's COVID-19 lockdowns and rising expectations for a big U.S. interest rate hike next week boosted the greenback.
With markets facing many risks, including central banks' tightening policy, just as economic growth momentum slows, investors have been buying dollars.
The dollar index, which measures the U.S. currency against a basket of rivals, is on course for its largest monthly gain since January 2015.
On Tuesday it rose another 0.2% to 101.96.
The euro dropped 0.3% to $1.0673, its weakest since March 2020 when concerns about the spread of COVID-19 depressed markets.
The euro has been hurt by the economic impact of the war in Ukraine but also by expectations the European Central Bank will move more slowly than the Federal Reserve in raising interest rates. The Fed meets next week, and markets are pricing in a 50 basis point rate hike then and again in June.
"Global growth-inflation backdrop is still tenuous and supportive of dollar strength," JPMorgan analysts wrote in a research note, pointing to recent growth downgrades and inflation forecast upgrades and adding that the dollar/yen rate remains their favoured way to play rising U.S. interest rates.
The JPMorgan analysts this month also cut their forecast for euro/dollar to $1.05 by the third-quarter from a previous $1.11 forecast.
China's financial hub of Shanghai has been under strict lockdown to fight COVID for around a month, while Beijing overnight ramped up plans for mass-testing of 20 million people and fuelled worries about a looming lockdown.
China's offshore yuan was slightly stronger in European trading at 6.5686 per dollar, but off the 17-month low of 6.61 hit on Monday.
The yuan started to recover after the People's Bank of China soothed market fears by saying late on Monday that it would cut the amount of foreign exchange banks must hold as reserves.
The British pound dipped 0.2% to $1.2706, having hit $1.2697 late Monday, its lowest since September 2020.
The Australian dollar climbed 0.4% to $0.7212, pushing it further away from two-month lows reached overnight after China lockdowns weighed on commodity prices.
The dollar fell 0.2% against the Japanese yen , to 127.82. The yen has managed a small recovery from last week's 20-year low of 129.43.
Tuesday is relatively light on economic data but investors will be watching out for U.S. consumer confidence numbers.
"Will today's release of April Conference Board consumer confidence have any impact on the pricing of the Fed cycle? We suspect not. DXY [the dollar index] may now be due some consolidation in the 101-102 area, but the trend towards testing the March 2020 high near 103 remains intact," ING analysts said.
Bitcoin was little changed, trading around $40,395, while fellow cryptocurrency ether dipped slightly to just below $3,000.
(Reporting by Tommy Wilkes Additional reporting by Alun John in Hong Kong; Editing by Emelia Sithole-Matarise and Barbara Lewis)