By Peter Nurse

Investing.com – The U.S. dollar slipped lower in early European trade Tuesday, handing back some of the overnight gains as healthy Chinese growth data boosted risk sentiment.

At 02:05 ET (06:05 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 101.707, after rising 0.5% overnight.

China’s post-COVID recovery appears to be firmly on track, after data released earlier Tuesday showed that the second largest economy in the world in the first quarter year-on-year, beating forecasts for 4% growth, and registering a sharp acceleration from the previous quarter’s 2.9% reading.

Additionally, surged more than 10%, hitting a near two-year high, reinforcing hopes that the country’s post-pandemic recovery remains on course.

This news has boosted optimism about the global economic recovery, to the detriment of the safe-haven dollar.

The greenback had traded higher on Monday after data showed that increased for the first time in five months, lifting expectations that the will hike interest rates again at its next meeting in May.

“With the market conditions continuing to settle a little … it seems likely now that the Federal Reserve will deliver one last 25bp hike in May and then hit the pause button to wait on the effects of tighter credit conditions caused by the March banking turmoil,” said analysts at ING, in a note.

rose 0.1% to 1.0941, below the one-year high of 1.1075 it touched last week although the is widely expected to continue hiking interest rates this year with inflation still significantly higher than its inflation goal.

The ECB can discuss changing its 2% inflation goal but only after it brings down inflation to that level, President Christine Lagarde said on Monday.

rose 0.2% to 1.2392, after the rose to 3.8% in February, from 3.7%, a weaker result than expected. However, the is still expected to hike interest rates by another 25 basis points at its meeting next month with inflation remaining highly elevated.

Elsewhere, rose 0.5% to 0.6732 as the of the Reserve Bank’s recent meeting showed that the bank may yet hike interest rates further, despite a pause in April. 

fell 0.1% to 134.31, while dropped 0.1% to 6.8716, benefiting from the strong Chinese growth data.

© Reuters.

By Ambar Warrick

Investing.com — Most Asian currencies moved in a flat-to-low range on Tuesday as growing concerns over the path of U.S. monetary policy kept traders wary of risk-driven assets, while stronger-than-expected Chinese economic data did little to improve sentiment.

rose slightly after data showed that in the first three months of 2023 grew a bigger-than-expected 4.5%, after the country relaxed most anti-COVID restrictions earlier this year.

While the reading indicates that an economic recovery in the country is on track, other readings furthered the notion that a rebound has so far been largely uneven. Softer-than-expected data in particular highlighted continued weakness in the manufacturing sector.

Investment in China’s property sector also slowed, a trend that could weigh on growth later this year. Still, a recovery in China bodes well for the broader Asian economy, given the country’s position as a dominant trading hub.

But most other Asian currencies fell on Tuesday, coming under pressure from strength in the dollar and Treasury yields as markets reassessed their expectations for how high U.S. interest rates will rise.

Risk-heavy Southeast Asian currencies bore the brunt of selling, with the and the down 0.4% each. The was flat after falling sharply overnight, also coming under pressure from new Bank of Japan Governor Kazuo Ueda stating that the bank’s ultra-loose policy will remain for now.

Among outliers for the day, the rose 0.2% as the minutes of the Reserve Bank’s recent meeting showed that the bank may yet hike interest rates further, despite a pause in April.

The and fell slightly on Tuesday, but marked a strong recovery from one-year lows over the past two sessions. show that markets are pricing in a nearly 90% chance the Fed will hike rates by 25 basis points (bps) in May, with a small, but growing possibility of a similar hike in June.

Treasury yields also rose in overnight trade, as hawkish signals from Fed officials and some stronger-than-expected data pushed up fears of more hikes. Focus is now on a slew of Fed speakers in the coming days, ahead of the on May 3.

The prospect of rising U.S. interest rates bodes poorly for Asian currencies, given that it narrows the gap between risky and low-risk yields. Bank of International Settlements head Agustín Carstens also warned that interest rates may need to stay higher for longer due to high inflation and rising risks of instability in the global economy.

© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic/Illustration

By Herbert Lash and Harry Robertson

NEW YORK/LONDON (Reuters) – The dollar rose on Monday after New York state factory activity in April increased for the first time in five months, helping bolster expectations the Federal Reserve will raise interest rates in May.

Also bolstering the dollar was a report showing confidence among U.S. single-family homebuilders improved for a fourth straight month in April.

The , a measures of the currency against six major peers, rose 0.413% after the Empire State Manufacturing index shot to 10.8 from -24.6 in March, far higher than expectations of -18 in a Reuters poll of 35 economists.

The new orders index rose 47 points to 25.1, while the shipments index added 37 points to 23.9, substantial increases after they had declined in recent months, the New York Fed said.

“It’s the best reading since last July with a big jump in orders and has taken the dollar higher on this,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“The economy still looks like it’s growing above what the Fed says is its speed limit,” he said. “The market is under-estimating chances of another hike after May. Now the market says the Fed is going to cut later, but I think that the economy is showing itself to be resilient.”

GRAPHIC: Empire State https://www.reuters.com/graphics/USA-STOCKS/zdvxdawervx/empirestate.png

Futures trading showed the probability of the Fed raising its lending rate to a range of 5.00%-5.25% when policymakers conclude a two-day meeting on May 3 rose to 88.7% from 78% on Friday, CME Group’s (NASDAQ:) FedWatch Tool showed.

Fed funds futures also showed that expectations the Fed will start cutting rates later this year were pushed back to November from September, with a smaller cut now anticipated.

The outlook of U.S. interest rates relative to the monetary policies and economies of other countries can boost or erode the dollar’s value.

The euro slid 0.66% to $1.0926 after hitting a one-year high of $1.108 on Friday. Traders expect further interest rate hikes from the European Central Bank as last month’s banking crisis fears have faded.

The yen weakened 0.45% at 134.40 per dollar as the Bank of Japan stuck to its easy-money policies, helping the greenback rise to its highest level since March 15.

“The dollar has bounced back but also we’ve had comments from the Bank of Japan indicating that there is no real reason for them to pull back from their ultra easy policy,” said Jane Foley, head of FX strategy at Rabobank.

New Bank of Japan Governor Kazuo Ueda last week made clear that the country would remain a “dovish” outlier by keeping interest rates at ultra-low levels for the time being.

GRAPHIC: Dollar hits one-month high against yen https://www.reuters.com/graphics/GLOBAL-FOREX/jnpwylzabpw/chart.png

Sterling was last trading at $1.2374, down 0.31% on the day.

The Mexican peso lost 0.11% versus the dollar to trade at 18.04, while the Canadian dollar fell 0.25% versus the greenback to 1.34 per dollar.