Dollar holds firm after strong U.S. data, Chinese yuan extends run

• The strength in the United States comes as European economic data points in the opposite direction.
• The dollar edged up marginally against a basket of currencies, with the index at 97.658.
• The yuan was last up only marginally at 6.8634 yuan.

LONDON: The dollar held near a one-month high against major currencies on Monday after last week's run of data confirmed that the United States economy is holding up well, while China's yuan hit a new six-month high.

Mostly though it was another quiet start to the week for currencies, with FX volatility near all-time lows and little in the way of key economic data.

Investors are focused on central bank meetings in Japan, which is on Tuesday, and the European Central Bank meeting on Thursday.

Moves were slight and volumes thin as Lunar New Year approaches in Asia and with U.S markets closed for Martin Luther King day on Monday.

Figures on Friday showed U.S. homebuilding surged to a 13-year high in December, with retail sales also on the rise and a gauge of manufacturing activity rebounding to its highest in eight months.

The strength in the United States comes as European economic data points in the opposite direction, though with possible signs of bottoming out both there and in China.

"Data released since the previous ECB meeting have been positive and consistent with the slightly more optimistic tone struck by (ECB President Christine) Lagarde in December regarding the economic outlook," RBC Capital Markets' currency strategist Adam Cole said.

The euro has failed to benefit much from the more positive noises, however, with U.S. data coming in strong and the euro/dollar exchange rate firmly stuck within a tight trading range.

The dollar edged up marginally against a basket of currencies, with the index at 97.658.

The euro was little changed at $1.1094.

"I think the U.S. dollar will continue to outperform against the major currencies," said Jeffrey Halley, senior market analyst for Asia Pacific at broker OANDA, adding he counted the chance of a Federal Reserve interest rate cut soon at zero. "I think the bar for a rate cut is quite high at the moment."

China's offshore yuan rose to as high as 6.8458, a new six-month high.

China on Friday posted its slowest annual growth figure in almost 30 years, although December data showed revived business confidence and quickening factory output.

The yuan was last up only marginally at 6.8634 yuan.

Sterling dropped again on Monday to $1.2971, down 0.3pc on the day, after Britain's finance minister Sajid Javid's comments at the weekend that Britain would not commit to sticking to European Union rules in post-Brexit trade talks.

Sterling also weakened versus the euro to 85.46 pence , down 0.2pc on the session.

The pound is now at the mercy of employment data on Tuesday and business surveys at the end of the week.

Money markets now price in a near 70pc chance of a Bank of England rate cut later this month in the face of a struggling economy.

The Japanese yen was unchanged against the dollar at 110.15 yen.