Dollar up ahead of US data

Amid concerns about the impact of China's COVID-19 lockdowns and the aggressive hike in interest rates, investors scrambled for safety as the dollar hit a two-year high against the euro and an 18-month high against the pound. The dollar increased against most peers in the overnight session, with its index coming in at 101.58, just off its two-year high.

Rising concerns over China's lockdown

On Monday evening, Beijing's top official said that a mass-testing campaign will be expanded to another ten districts, and economic development zone, and the city's most populous neighbourhoods. It is about a month now since Shanghai has been under strict lockdown as it battles COVID.

More aggressive tightening policies

In addition, several policymakers also raised the possibility of aggressive interest rate policy tightening with their hawkish remarks last week. One of the most significant announcements has come from the US Federal Reserve. Expectations are that it will raise rates by half a point at each of its two upcoming meetings.

ECB officials' hawkish stance on Tuesday lent some support to the single currency. Martins Kazaks, an ECB policymaker, believes a rate hike is most likely in July when the asset purchase program (APP) ends.

EUR/USD slightly bounced in the morning European trading session. However, regarding the different situation in Europe than the US, some traders see this market action as a dead cat bounce above the two-year lows. After a few trading sessions, the pair tumbled on renewed stagflation fears in the eurozone and a stronger greenback amid expectations that the Fed will hike rates significantly in May.

The benchmark 10-year US bond yield held steady above 2.80 this morning. Bond yields fell on Monday from hawkish Fed-induced highs as China's lockdown and growth fears pushed investors to US bonds for safety.

Events of today

There is no significant data release during the European session on the economic calendar on Tuesday. The US market will see the monthly core durable goods orders for March, which are likely to increase 0.6% after a 0.6% contraction in February. 

Investors will closely watch CB consumer confidence for April and new home sales for March. Canada's manufacturing sales figures are also among the economic data on Tuesday.