© Reuters. FILE PHOTO: US dollar banknotes are shown in this illustration taken on February 14, 2022. REUTERS/Dado Rovik/Illustration
Written by Kevin Buckland and Joyce Alves
TOKYO/LONDON (Reuters) – The dollar rose on Thursday as the Chinese yuan fell to a two-month low after further evidence of China’s weak post-coronavirus recovery cast a shadow over the global economic outlook.
Sterling fell ahead of the BoE key meeting, as traders anticipate a slight uptick and look for signs of further gains in the coming months.
After sliding on the back of slowing US inflation boosting confidence that the Federal Reserve has hiked interest rates, the dollar rose against the euro and other major currencies after Chinese data showed that consumer inflation had nearly leveled off last month.
Slowing Chinese inflation, suggesting more stimulus may be needed to bolster an incomplete post-COVID economic recovery, came on the back of data earlier in the week that showed an unexpected drop in imports.
It fell to 6.9427 per dollar, a level last seen on March 10th.
The greenback’s measure against a basket of six major peers, including the euro and the pound sterling, rose 0.45% to 101.87.
“The market is trying to assess which economy will slow faster, and hasn’t decided yet how to read the latest data,” said Rodrigo Cattrell, chief forex analyst at National Australia Bank (OTC:).
“The US CPI was encouraging, and should be dollar negative, but the Chinese CPI is a reminder of the issues going on there.”
Money market traders are currently placing odds of 5% on a quarter-point increase in June, and a 95% probability of a pause. Cuts were priced in by three-quarters of a point by the end of this year.
The euro was also hit by Chinese data, dropping 0.5% to a three-week low of $1.0924.
The pound sterling fell 0.5 percent to $1.2567, retreating from Wednesday’s high of $1.2679. The Bank of England will issue its policy decision later on Thursday, and is preparing for its 12th consecutive rate hike.
With markets fully priced in a 25 basis point rate hike, the focus will be on the new outlook, especially the 2-year CPI, and future directions, said ING FX Analyst Francesco Pesol.
“We think the markets got ahead of themselves, and today’s 25 basis point increase, (with) two members voting unchanged, may be the last in this cycle,” he said.
The commodity currency, the Norwegian crown, fell 0.7% against the dollar, to 10.5750. The Swedish krona fell 0.7 percent to 10.2830 per dollar.
Elsewhere, the dollar fell 0.7% to $0.6731, off a 2-and-a-half-month high of $0.6818.
The New Zealand dollar fell 0.6% to $0.6332, after briefly touching a three-month high of $0.6384.