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Watch Out, Traders! Dollar Index Breaches Key Level As Greenback Firms On China COVID-19 Worries, Hawkish Fed

The U.S. dollar commenced the week on a strong note, with the dollar index rising 0.53% to 107.49, boosted by defensive buying as investors weighed in on a spike in COVID-19 cases in China. The dollar index measures the strength of the greenback against a basket of currencies.

On Monday, the index breached a key resistance level of 107.24 as Beijing reported two COVID-19 deaths for Nov. 20 and the city's most populous district asked residents to stay at home, extending a call from the weekend.

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Expert Take: Carol Kong, a currency strategist at the Commonwealth Bank of Australia told Reuters that the outlook for China's zero-COVID market will remain a key source of volatility. "If we do see another set of step up in restrictions, it indicates to me that the Chinese officials are still wary of any eventual reopening," Kong said.

Apart from the China concerns, a hawkish Federal Reserve is also providing strength to the dollar. Federal Reserve Bank of Boston leader Susan Collins said on Friday the central bank may need to deliver another 75-basis point rate hike as there is little evidence about price pressures waning.

Wall Street has begun to take the Fed talk into consideration with the rally following the softer October inflation print taking a break over the last few days. The SPDR S&P 500 ETF Trust NYSE:SPY ended Friday's session 0.45% higher while the Vanguard Total Bond Market Index Fund ETF NASDAQ:BND lost 0.17%.

Key Event: Market participants are keenly waiting for the minutes from the Fed's November meeting due to be released on Wednesday.

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