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SINGAPORE: The dollar slipped on Tuesday after a sharp rise overnight as strong US economic data reinforced expectations that the Federal Reserve will hike interest rates in May, while China’s economic recovery gathered pace in the first quarter.
The dollar index, which measures the currency against six major rivals, eased 0.078 percent to 102.01 after rising 0.5 percent overnight.
China’s gross domestic product grew 4.5 percent year-on-year in the first three months of 2023, data showed on Tuesday, beating analyst forecasts for a 4 percent expansion as the end of COVID-19 curbs lifted the world’s second-largest economy out of a slump.
Separate data on March activity also released on Tuesday showed retail sales growth quickened to 10.6 percent, beating expectations and hitting a near two-year high, while factory output growth also sped up but was just below expectations.
Oversea-Chinese Banking Corp. currency strategist Christopher Wong said it was quite an encouraging report, with retail sales, GDP and property sales all higher than expected, reinforcing that post-pandemic recovery momentum remained intact.
The offshore Chinese yuan fell 0.02 percent to $6.8795 per dollar. In the US, data released on Monday showed confidence among single-family homebuilders improved for a fourth consecutive month in April, while manufacturing activity in New York state increased for the first time in five months.
Markets are pricing in a 91 percent chance of the Fed raising interest rates by 25 basis points at its next meeting in May, the CME FedWatch tool showed, with traders expecting rate cuts toward the end of the year.
“The dollar can remain sensitive to the strength, or not, of the economic data as the Fed likely nears the end of their tightening cycle,” said Kristina Clifton, an economist at the Commonwealth Bank of Australia.
Meanwhile, the euro was up 0.07 percent to $1.0934 but was below the one-year high of $1.10755 it touched last week, with traders expecting the region’s central bank to stick to its monetary tightening path.
The Japanese yen was flat at 134.48 per dollar, while the sterling last traded at $1.2381, up 0.06 percent on the day. Investors will focus on UK employment data due later in the day, which could cause some volatility in the pound if the report shows that the labor market is not cooling.
CBA’s Clifton said Britain’s policymakers would be watching the wages data closely for further confirmation that private sector income growth is slowing.
The kiwi rose 0.10 percent to $0.619, while the Australian dollar gained 0.22 percent to $0.672.
Minutes of the last Reserve Bank of Australia meeting showed that the central bank considered an 11th-consecutive rate hike in April before deciding to pause. The central bank, however, said it was ready to tighten further if inflation and demand failed to cool.