Geoffrey Smith

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

The stock was at 103.41 by 3:10 PM ET (0610 GMT) and within half a percentage of last week’s 20-year record.

The latest leg of the rally reflects on the one hand anticipation of a half-point rise in U.S. official interest rates on Wednesday at the Federal Reserve’s regular policy meeting, which drove U.S. bond yields sharply higher on Friday, making the dollar more attractive. Some believe that the Fed will announce that it will reduce its bond holdings more quickly than originally indicated.

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

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

Dollar rose 0.5% against 6.6730 on the news. There was a temporary relief rally Friday following promises of additional policy support. But, this quickly fell away.

They were also under pressure by developments in the bond market. Expectations for Fed increases contrast sharply to messaging from the European Central Bank. Top officials of the bank are still reluctant to promise to raise interest rates in July. In their most recent comments on this subject, Philip Lane, chief economist and Luis de Guindos Vice President left a lot of uncertainty.

The euro wasn’t helped by surprisingly weak for March, the first full month’s data to reflect the impact of the war in Ukraine on consumer confidence in the region. Retail sales decreased 0.1% for March, and 2.7% overall.

Also, the euro felt jittery ahead of an EU emergency meeting of energy ministers Monday. The emergency meeting will discuss a phased ban on Russian oil imports to punish Russia’s invasion of Ukraine. Although the effect is expected to increase costs for sourcing energy even in a basic scenario, analyst worry it will also lead to a unilateral reduction in supplies to Europe. It would make it much more difficult to replace in the long term.

Trade in Europe was thinned out by the closure of the region’s biggest financial center, London, and a number of other markets for a public holiday. The dollar was $1.2570 flat.