By Brigid Riley and Anna Pruchnicka
LONDON/TOKYO (Reuters) – The dollar hit five-month highs against the pound and euro on Tuesday, a day after hotter-than-expected U.S. retail sales pushed up Treasury yields, raising concerns about intervention of Tokyo while the yen languished at elevated levels. it is the lowest since 1990.
Data on Monday showed U.S. retail sales rose 0.7% last month, compared with a 0.3% rise expected by economists polled by Reuters, reinforcing expectations that the Federal Reserve will not have rush to cut interest rates this year.
“The US economy continues to grow very solidly at a level above the long-term trend and which supports higher US bond yields and which argues against the Fed cutting interest rates,” said Kenneth Broux, Head of Corporate Research, FX and Rates at Société Générale (OTC:).
According to CME’s FedWatch tool, markets are currently pricing in a 41% chance that the Fed will cut rates in July, up from around 50% before the data.
Investors will await clues from Federal Reserve Chairman Jerome Powell, who will speak later on Tuesday, in his first comments since last week’s US inflation data was warmer than expected.
The euro rose slightly to $1.0626 but is still hovering near its Nov. 2 lows, under pressure after the European Central Bank last week signaled a rate cut in June.
Sterling also rose marginally to $1.2449, having earlier hit a five-month low of $1.2409, as traders digested data showing Britain’s core wage growth recorded its weakest gain yet. from three months to September 2022, but remained strong by historical standards.
That contributed 0.04% growth to 106.23, after hitting its highest since Nov. 2, in European morning trade.
EYES ON ASIA
The yen was last trading around 154.64 per dollar, the weakest level in 34 years, and close to what analysts say is the new resistance level of 155.
This kept traders on alert for yen-buying intervention by Japanese authorities. With hedge funds making their biggest bets against the currency in 17 years, a rebound in the yen could spark a significant rally.
In Tokyo, Japanese Finance Minister Shunichi Suzuki said Tuesday that he was closely watching currency movements and would give “a thorough response if necessary.”
Though surgery, even if it comes, won’t be a long-term solution, some say.
“Today intervention can only work to slow or manage the pace of depreciation, but it cannot reverse a trend. And it is actually very expensive,” Broux said.
“The big challenge for a lot of these Asian currencies is that as long as U.S. bond yields continue to rise, you’re not going to get a lot of success because you’re fighting a wider yield spread.”
The 10-year U.S. benchmark yield stood at 4.653%, just below the previous day’s five-month high. The Japanese 10-year yield was at 0.873%. [JP/]
Other emerging Asian currencies were also at multi-year or multi-month lows. [EMRG/FRX]
The Chinese yuan fell slightly even after GDP data for China’s first quarter beat expectations, giving a boost to policymakers seeking to shore up confidence amid a prolonged housing crisis.
The price fell to 7.2422 per dollar, the weakest level since November, before recovering after the data was released, and was last at 7.2388 per dollar. On the offshore market, the dollar appreciated by 0.1% to 7.2680 yuan.
The Australian dollar fell 0.45% to $0.6414, after hitting its lowest since Nov. 14.