The dollar stabilized near its highest level in two years on Tuesday, as concerns about the economic impact of China's Covid-19 lockdowns curbed the dollar's appeal as a safe haven, while expectations of a US interest rate hike kept bond yields elevated.

The dollar index, which measures the performance of the US currency against six major currencies, fell 0.13% to 101.59 points after reaching a two-year high of 101.86 last night.

The index has risen 3.3% since the beginning of the month, marking its biggest monthly gain since November 2015, according to Reuters.
 

Analysts at Westpac said in a note, "The bet on further dollar index gains is still a good one. Growth risks in China are rising as authorities continue their fierce Covid-19 crackdown, conditions related to Ukraine remain volatile, and Federal Reserve talk remains as hawkish as ever."

However, the offshore Chinese yuan rose slightly to 6.5572 against the dollar after the People's Bank of China late Monday said it would reduce the amount of foreign exchange reserves banks are required to hold.

This helped the currency recover from its lowest level in a year at 6.609 against the dollar on Monday, which was recorded amid concerns about China's economic growth.
 

Stock markets and US bond yields also rose on Tuesday amid a general improvement in risk appetite.

The euro was at $1.0727, up 0.14% and retreating from a two-year low of $1.0697 recorded on Monday, when market anxiety outweighed optimism over the re-election of French President Emmanuel Macron.

The British pound stood at $1.2744, up 0.18%, after hitting its lowest levels since September 2020 last night.

The Australian dollar rose 0.6% from a two-month low it reached last night after China's lockdowns affected commodity prices.

The dollar was little changed against the yen at 128.16. The Japanese currency managed a slight recovery this week from its 20-year low of 129.40.

Bitcoin rose slightly to $40,600, while Ether stood at $3,000.

Researchers at crypto liquidity provider "P2C2" said trading in the cryptocurrency market is currently closely linked to stock markets, in the absence of any strong cryptocurrency-related themes.