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 (GDP) grew 4.5 percent year-on-year in the first three months of the year, 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.
OCBC 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, CME FedWatch tool showed, with traders expecting rate cuts towards 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 Commonwealth Bank of Australia (CBA).
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 back to stick to its monetary tightening path. – Reuters
