By Brigid Riley and Anna Pruchnicka
LONDON/TOKYO (Reuters) – The dollar hit a five-month high against the pound and the euro on Tuesday, a day after higher-than-expected U.S. retail sales sent Treasury yields higher , sparking fears of intervention from Tokyo as the yen languished at its lowest since 1990.
Data released Monday showed U.S. retail sales rose 0.7% last month, compared with a 0.3% rise forecast by economists polled by Reuters, bolstering expectations that the Federal Reserve will be in no rush to cut interest rates this year.
“The U.S. economy continues to grow very solidly at a level that is above the long-term trend and supports higher U.S. bond yields and makes the case against lowering interest rates by the Fed,” Kenneth said Broux, head of corporate research, foreign exchange and interest rates. Prices at Société Générale (OTC:).
Markets are now pricing in a 41% chance the Fed will cut rates in July, up from around 50% before the data was released, according to the CME FedWatch tool.
Investors will be waiting for clues from Federal Reserve Chairman Jerome Powell, who is due to speak later Tuesday, his first comments since last week’s U.S. inflation data was hotter than expected.
The euro rose slightly to $1.0626 but remains near the November 2 low, under pressure after the European Central Bank last week signaled a rate cut in June.
Sterling also edged up to $1.2449, after hitting a five-month low of $1.2409, as traders digested data that showed UK core wage growth recorded its weakest rise in the three months through September 2022, but remained strong by historical standards.
This contributed to the rise of 0.04% to 106.23, after reaching its highest level since November 2, in European morning trading.
EYES ON ASIA
The yen last hovered around 154.64 per dollar, its weakest level in 34 years, and close to what analysts see as the new resistance level of 155.
This kept traders on alert for yen buying intervention from Japanese authorities. As hedge funds make their biggest bets against the currency in 17 years, a rebound in the yen could trigger a significant rally.
In Tokyo, Japanese Finance Minister Shunichi Suzuki said Tuesday he was closely monitoring currency movements and would provide a “thorough response if necessary.”
Even if intervention happens, it won’t be a long-term solution, some say.
“Intervention can only work today to slow or manage the pace of depreciation, but cannot reverse a trend. And it is actually very costly,” Broux said.
“The big challenge for a number of these Asian currencies is that as long as U.S. bond yields continue to rise, you’re not going to have much success because you’re going to be fighting a wider yield gap.”
The benchmark US 10-year yield stood at 4.653%, just above the previous day’s five-month high. Japan’s 10-year yield was 0.873%. (JP/)
The other currencies of emerging Asian countries were also at their lowest level in several years or several months. (EMRG/FRX)
China’s yuan fell slightly even after China’s first-quarter GDP data beat expectations, providing a boost to policymakers trying to boost confidence in the face of a prolonged housing slump.
The price fell to 7.2422 per dollar, its lowest level since November, before recovering after the data was released, and was last settled at 7.2388 per dollar. In the offshore market, the dollar rose 0.1 percent to 7.2680 yuan.
The Australian dollar fell 0.45% to $0.6414, after hitting its lowest level since November 14.