TOKYO – The dollar rose to a five-month high against major peer currencies on Tuesday following hotter-than-expected U.S. retail sales figures, raising worries of an intervention from Tokyo as the yen languished at its lowest since 1990.
The Chinese yuan edged marginally lower even after GDP data for China’s first quarter beat expectations in a boost for policymakers trying to shore up confidence in the face of a protracted property crisis.
Data on Monday showed U.S. retail sales rose 0.7% last month, compared with a 0.3% rise that economists polled by Reuters had forecast. Data for February was revised higher to show sales rebounding 0.9% for the largest gain in just over a year, much stronger than the previously reported 0.6%.
The latest data has raised more questions about when the Federal Reserve could begin cutting interest rates, following robust employment gains in March and a pick-up in consumer inflation.
Markets are now pricing in a 41% chance of the Fed cutting rates in July, compared with around 50% before the data, according to CME FedWatch tool. The likelihood of the first cut coming in September has bumped up to nearly 46%.
“I just see no chance of a July cut, assuming we’re all looking at the same data,” said Matt Simpson, senior market analyst at City Index.
Underlining the market bets, the president of the San Francisco Federal Reserve Bank, Mary Daly, said late on Monday in the United States that there is “no urgency” to cut U.S. interest rates.
The U.S. dollar index touched 106.39 on Tuesday, the highest since Nov. 2.
In the face of dollar strength, the yen breached 154 per dollar to its weakest in 34 years.
That kept traders on high alert for yen-buying intervention from Japanese authorities. With hedge funds building up their largest 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 on Tuesday he was closely watching currency moves and will take a “thorough response as needed”.
The yen last hovered around 154.26 per dollar, close to the new resistance level of 155.
Despite verbal warnings, “the test of 155 seems too tempting,” and market forces are likely to drive the currency pair higher, said Simpson at City Index.
“How it reacts around that level should provide a good indication of whether (Japanese authorities) have thrown in the towel with intervention.”
The onshore yuan fell to 7.2422 per dollar to its lowest since November, before picking up after official data showed China’s economy grew in the first quarter by 5.3% from a year earlier, comfortably beating analysts’ expectations.
But the country’s retail sales missed expectations, a worrying sign for consumer confidence and a reflection of the economy’s uneven recovery.
The yuan last stood at 7.2376 per dollar, with losses capped thanks to the upbeat gross domestic product (GDP) figures and state bank support.
The euro was at $1.060625, the weakest since Nov. 2, as it continued to slump after the European Central Bank last week left the door open to a rate cut in June.
The Australian dollar dropped to $0.64085, its lowest since Nov. 14, while the kiwi similarly slid to a five-month low of $0.58735.
Bitcoin fell roughly 1% to $62,550.00.
