Dollar Soars to Five-Month Peak, Middle East Tensions Escalate

16 Apr 2024 , 10:16 AM

Following hotter-than-expected U.S. retail sales data on Tuesday, the dollar rose to a five-month high against key peer currencies, sparking concerns about intervention while the yen continued to linger at its lowest level since 1990.

After falling to its lowest level since November in early Asian trade, the Chinese yuan recovered as GDP figures for the country's first quarter above forecasts, providing officials with a lift as they work to restore confidence in the face of a protracted housing crisis.

Retail sales in the United States increased by 0.7% last month, contrary to the 0.3% increase that Reuters's panel of economists had predicted. After data for February was updated, sales increased by 0.9%, marking the biggest increase in over a year.

The new data, which comes after strong job gains in March and a pickup in consumer prices, has prompted further speculation about when the Federal Reserve would start reducing interest rates.

According to the CME FedWatch tool, markets are now pricing in a 41% possibility of the Fed lowering rates in July, down from over 50% before to the data. The probability that the first cut will occur in September has increased to over 46%.

The San Francisco Federal Reserve Bank President, Mary Daly, highlighted the market bets by declaring late on Monday that there is "no urgency" to lower US interest rates.

On Tuesday, the U.S. dollar index reached its highest level since November 2 at 106.37.

The yen broke through 154 per dollar to reach its lowest level in 34 years against the strengthening dollar.

This put traders on high alert in case Japanese authorities decided to intervene by buying yen. A big surge could be sparked by the yen's rebound, as hedge funds are increasing their bets against the currency to the highest levels seen in 17 years.

Just after the dollar reached a 34-year high on Tuesday, Japanese Finance Minister Shunichi Suzuki announced in Tokyo that he was closely monitoring currency movements and will take a "thorough response as needed".

The yen was recently trading near the new resistance level of 155, at 154.40 per dollar.

The offshore Chinese yuan dropped to its lowest level since Nov. 14—7.2831 per dollar—before rising as official statistics revealed that China's GDP expanded 5.3% year over year in the first quarter of this year, handily outpacing investor expectations.

However, China's retail sales fell short of forecasts, which is concerning for consumer confidence and a reflection of the uneven recovery of the economy.

In other news, the euro resumed its downward spiral after the European Central Bank last week hinted at a rate drop in June, hitting $1.06070, its lowest level since Nov. 2.

At $0.64085, the Australian dollar fell to its lowest level since November 14.

The kiwi fell to $0.58815, a five-month low.

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