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Dollar strength pauses after upbeat China data, pound gains

By Samuel Indyk and Ankur Banerjee
LONDON (Reuters) – The dollar slipped on Tuesday after better-than-forecast growth data from China, while upbeat pay data from Britain supported the pound.

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

“Normally on a day when you have good Chinese activity data you get a decent rally in commodity currencies, emerging market currencies and the dollar would soften and we are starting to see that,” said Chris Turner, global head of markets at ING.

“Better Chinese data is normally seen as good news for the euro too, due to the large manufacturing sector,” Turner added.

The euro was last up 0.4% versus the dollar at $1.0969 after two consecutive daily falls of over 0.5%.

The dollar index, which measures the currency against a basket of currencies, fell 0.3% to 101.76, having risen over 1% in the last two trading sessions.

China’s offshore yuan was little changed at 6.8774 per dollar.

Britain’s pound jumped despite an unexpected rise in the unemployment rate in the three months to February as pay growth stayed higher than forecast, which could prompt the Bank of England to hike its interest rate again in May.

“Sterling has enjoyed a modest lift from today’s data,” ING’s Turner said.

“Earnings figures have surprised on the upside. At the margin, that supports a 25 basis point hike in May from the Bank of England.”

The pound was last up 0.4% against the dollar at $1.2431.

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 around a 90% chance of the Fed raising interest rates by 25 basis points at its next meeting in May, with traders still 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 Australian dollar gained 0.4% to $0.673 after the RBA minutes 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.

“The minutes of the RBA’s April meeting reinforce our view the decision to leave rates on hold did not signal an end to the Bank’s tightening cycle,” said Capital Economics Australia and New Zealand Economist Abhijit Surya, who expects a final 25 basis point hike in May.

The dollar fell 0.2% to 134.28 Japanese yen, while the kiwi rose 0.4% to $0.6205.

(Reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Shri Navaratnam, Jamie Freed and Angus MacSwan)

Disclaimer: This report is auto generated from the Reuters news service. ThePrint holds no responsibilty for its content.

Source: The Print

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