Singapore, April 18 (BNA): The dollar fell on Tuesday after a sharp rally overnight as strong US economic data reinforced expectations that the Federal Reserve will raise interest rates in May, while China’s economic recovery accelerated in the first quarter.
The dollar index, which measures the currency against six major competitors, slipped 0.078% to 102.01, after rising 0.5% overnight.
Data on Tuesday showed that China’s gross domestic product grew 4.5% year-on-year in the first three months of the year, beating analysts’ expectations for a 4% expansion as the end of COVID-19 restrictions lifted the world’s second-largest economy. The largest economy is emerging from recession, Reuters reported.
Separate data on March activity released on Tuesday also showed retail sales growth accelerated to 10.6%, beating expectations and reaching the highest level in nearly two years, while factory output growth also accelerated but was just below expectations.
It’s quite an encouraging report, said Christopher Wong, currency strategist at OCBC, with retail sales, gross domestic product and property sales all higher than expected, adding to the post-pandemic recovery momentum.
The offshore Chinese yuan fell 0.02% to $6.8795 per dollar.
In the United States, data released on Monday showed confidence among single-family homebuilders improved for the fourth consecutive month in April, while manufacturing activity increased in New York state for the first time in five months.
The CME FedWatch tool showed that markets are pricing in a 91% chance that the Fed will raise interest rates by 25 basis points at its next meeting in May, as traders anticipate year-end rate cuts.
“The dollar could remain sensitive to the strength of economic data, or not, as the Fed is likely to be nearing the end of the tightening cycle,” said Christina Clifton, an economist at the Commonwealth Bank of Australia (CBA).
Meanwhile, the euro rose 0.07% to $1.0934, but was below the one-year high of $1.10755 touched last week, with traders expecting the region’s position to stick back onto the path of monetary tightening.
The Japanese yen settled at 134.48 per dollar, while the British pound was last traded at $1.2381, up 0.06% on the day.
Investors will focus on UK employment data due later in the day which is likely to cause some volatility in the pound if the report shows that the labor market is not resting.
CBA’s Clifton said UK policymakers will be watching wage data closely for further confirmation that private sector income growth is slowing.
The kiwi rose 0.10% to $0.619, while the Australian dollar rose 0.22% to $0.672.
Minutes of the last meeting of the Reserve Bank of Australia showed that the central bank considered its 11th consecutive interest rate hike in April before deciding to pause.
However, the central bank said it is ready for further tightening if inflation and demand fail to calm down.