Dollar slips after earlier rally; China GDP beats estimates

The dollar eased on Tuesday after rallying overnight as strong U.S. economic data reinforced expectations that the Federal reserve will hike interest rates again in May, while China’s economic recovery gathered pace in the first quarter.

The dollar index , which measures the currency against six major rivals, fell 0.108% at 101.99, after rising 0.5% overnight. The index is down 0.5% for the month.

China’s gross domestic product (GDP) grew 4.5% year-on-year in the first three months of the year, data showed on Tuesday, beating analyst forecasts for a 4% 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%, 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 eased 0.04% to $6.8783 per dollar.

In the U.S., 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% 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).

The euro up 0.04% to $1.09320, easing away from 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.

The Japanese yen weakened 0.03% to 134.52 per dollar, hovering around the one-month peak of 134.57 it touched on Monday.

Sterling was last trading at $1.2381, up 0.06% on the day ahead of employment data that could potentially cause some volatility in the pound if the report shows that the labour market is not cooling.

CBA’s Clifton said Britain’s policy makers will be watching the wages data closely for further confirmation that private sector income growth is slowing.

Bank of England in recent communications cited slower private sector wages as a factor behind its expectation that core inflation could drop back to target, Clifton added.

The kiwi rose 0.05% to $0.618.

The Australian dollar rose 0.24% to $0.672 after the 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.

Article source: https://www.nation.com.pk/18-Apr-2023/dollar-slips-after-earlier-rally-china-gdp-beats-estimates