Bridget 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 stronger-than-expected U.S. retail sales pushed Treasury yields higher, raising concerns about government intervention. side of Tokyo as the yen weakened to its lowest level since 1990.
Data on Monday showed U.S. retail sales rose 0.7% last month, compared with the 0.3% rise that economists polled by Reuters had forecast, adding to expectations that the Federal Reserve will be in no rush to cut interest rates this year.
“The U.S. economy continues to grow very strongly at a level that is above the long-term trend and which really supports higher U.S. bond yields and argues against the Fed cutting interest rates,” said Kenneth Brough, head of corporate research for foreign exchange and foreign exchange markets. Prices at Societe Generale (OTC:).
Markets now rate the likelihood of the Fed cutting rates in July at 41%, up from about 50% before the data, according to CME’s FedWatch tool.
Investors will be watching for clues from Federal Reserve Chairman Jerome Powell, who is scheduled to speak later on Tuesday. His first comments following last week’s US inflation data were more heated than expected.
The euro edged up slightly to $1.0626 but is still hovering near its Nov. 2 lows, under pressure after the European Central Bank signaled a June rate cut last week.
Sterling also edged marginally higher to $1.2449, having earlier hit a five-month low of $1.2409, as traders digested data that showed UK basic pay growth posted its weakest rise in the three months to September 2022 but remained strong on historical standards.
It helped rally 0.04% to 106.23, its highest level since November 2 in European morning trade.
A LOOK AT ASIA
The yen last hovered around 154.64 per dollar, its lowest level in 34 years, and close to what analysts say is new resistance level at 155.
This forced traders to be on high alert for intervention by the Japanese authorities to buy the yen. 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 he was closely monitoring the currency’s movements and would take “thorough measures as necessary.”
Although intervention, even if it occurs, will not be a long-term solution, some say.
“Today, intervention can only help slow down or control the rate of depreciation, but cannot reverse the trend. And it’s actually very expensive,” Bru said.
“The big problem for a number of these Asian currencies is that as long as U.S. bond yields continue to rise, you’re not going to do much because you’re fighting against a wider yield spread.”
The U.S. 10-year yield was last at 4.653%, not far from the previous day’s five-month high. Japan’s 10-year yield last stood at 0.873%. [JP/]
Other currencies in emerging Asia were also at multi-year or multi-month lows. [EMRG/FRX]
The Chinese yuan eased slightly even after China’s first-quarter GDP data beat expectations, prompting policymakers to try to shore up confidence in the face of a protracted housing crisis.
The rate fell to 7.2422 per dollar, its weakest since November, before rising after the data and was last at 7.2388 per dollar. In the offshore market, the dollar rose 0.1% to 7.2680 yuan.
The Australian dollar fell 0.45% to $0.6414, hitting its lowest level since November 14.