SINGAPORE: The dollar eased on Tuesday after rallying overnight as strong US economic data reinforced expectations that the Federal reserve will hike interest rates again in May, while investors awaited data from China that will highlight the extent of the recovery of the world’s second biggest economy.
The dollar index, which measures the currency against six major rivals, fell 0.039% to 102.05, after rising 0.5% overnight.
Data on Monday showed confidence among US single-family homebuilders improved for a fourth straight month in April, while manufacturing activity in New York state increased for the first time in five months.
“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.
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.
Investor focus will be on China’s first quarter GDP data due later in the day to asses how swiftly the country’s economy has recovered after it ended strict COVID curbs in December.
Economic growth is expected to have gathered pace from the pandemic slump, although headwinds persist and the outlook is expected to be a bumpy affair.
Dollar rebounds on higher expectations for Fed hike in May
The euro was down 0.01% at $1.0925, easing away from the one-year high of $1.10755 it touched last week.
The Japanese yen strengthened 0.09% to 134.36 per dollar, hovering around the one-month peak of 134.57 it touched on Monday. Sterling was last trading at $1.2375, up 0.01% on the day.
The kiwi rose 0.10% to $0.619.
The Australian dollar tacked on 0.01% at $0.670 as traders awaited minutes of the last Reserve Bank of Australia meeting, when the central bank paused its run of rate hikes to assess the impact of past increases.
Saxo strategists said if the minutes highlight interest rates could rise again, the Aussie could push higher, especially as the market has priced no hikes are on the table.
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