HONG KONG, April 26 (Reuters) - The dollar held near a two-year peak on Tuesday as concerns about the economic impact of China's COVID-19 lockdowns held up the greenback's safe-haven appeal and aggressive U.S. interest rate hike expectations kept bond yields elevated.
The dollar index , which measures the greenback against six main peers, was 0.13% lower at 101.59 after hitting a two-year peak of 101.86 overnight.
It has gained 3.3% so far this month, which would be its largest month of gains since November 2015.
"Further (dollar index) upside remains a good bet. China growth risks are rising as authorities pursue an aggressive COVID campaign, conditions around Ukraine remain volatile and 'Fed-speak' remains as hawkish as ever," said analysts at Westpac in a note.
China's financial hub of Shanghai has now 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.
Hawkish comments by various central bank policymakers last week also raised the prospect of aggressive interest rate hikes. The most significant of these came from the U.S. Federal Reserve, which markets expect to raise rates by a half point at each of its next two meetings. FEDWATCH
China's offshore yuan was slightly higher however, at 6.5572 per dollar after the People's Bank of China said late on Monday it would cut the amount of foreign exchange banks must hold as reserves.
That helped the currency recover from a year low of 6.609 per dollar on Monday, hurt by fears about China's economic growth.
Equity markets and U.S. bond yields also edged higher on Tuesday amid an improvement in overall risk sentiment.
The euro was at $1.0727, up 0.14% and edging off a two-year low of $1.0697 hit on Monday, when market nerves offset optimism from the re-election of French President Emmanuel Macron.
The pound was at $1.2744, up 1.8%, having hit its lowest since September 2020 overnight. U.S. futures market data shows funds have amassed their biggest wager against the pound since October 2019, a bet now worth close to $5 billion.
The Australian dollar rebounded 0.6% from its two-month low overnight, which it hit after China lockdowns weighed on commodity prices.
The dollar was little changed against yen , at 128.16. The Japanese currency has managed a very slight recovery this week from last week's 20-year low of 129.40.
Bitcoin was a little firmer at $40,600, and ether was at $3,000.
Researchers at crypto liquidity provider B2C2 said crypto market trading was currently correlated closely with equity markets, in the absence of any strong crypto-related themes.
Reporting by Alun John; Editing by Kenneth Maxwell and Sam Holmes