Investing.com – The U.S. dollar remained in demand in early European trade on Tuesday, rising to a five-month high, while sterling fell following relatively benign wages data.
At 04:00 ET (0900 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 106.125, just below the 106.39 level seen earlier in the day. Tuesday, the highest level since trading began. November.
Retail sales push dollar even higher
The safe-haven dollar is being supported by lower risk appetite given heightened tensions in the Middle East as traders cautiously await Israel’s response to the Iranian strike over the weekend amid fears of a wider regional conflict.
In addition, a sharp rise of 0.7% on Monday last month, compared with expectations of 0.3%, raised more questions about when interest rates could begin to be cut, following strong employment growth in March and rising consumer inflation.
“Consumption was expected to be a weak link in the US economy,” ING analysts said in a note, “but the lack of slowdown in this segment largely supports the view that the Federal Reserve is in no hurry to cut rates. »
President of the Federal Reserve Bank of San Francisco, added to the growing view that the US central bank is in no hurry to cut rates.
She said Monday there was “no urgency” to cut spending because the economy and labor market are strong and inflation is still above the Fed’s 2% target.
Today’s economic calendar includes the release of data for March, as well as the latest index data and , which will provide further insight into the health of the housing sector.
But the focus will be on the Fed Chairman’s speech later in the session to get more insight into the dynamics of interest rates and the US economy.
Sterling weakens after payroll data
In Europe, the pound was 0.1% lower at 1.2438, with sterling trading near a five-month low after data showed the UK rate rose 6.0% year-on-year in the three months to the end of February.
This represents a fall from 6.1% in the previous month, suggesting wage growth may have peaked, leaving room for interest rates to be cut if the trend continues.
The Bank of England governor said last month there were “further encouraging signs of a decline in inflation” but he also said the Bank of England needed more confidence that price pressures were under control before cutting inflation.
fell 0.1% to 1.0615, near its lowest level since early November last year, continuing to decline after hints last week of a June rate cut.
A rate cut in June will depend on there being no further setbacks in the geopolitical situation that will affect energy prices and therefore inflation, ECB member Olli Rehn said on Tuesday.
Yen falls to new 34-year low
In Asia, the index rose 0.2% to 154.55, rising to a new 34-year high above 154.
This recent yen weakness comes even as several Japanese government officials have warned against excessive speculation in the foreign exchange market, raising the possibility of intervention in foreign exchange markets.
Japanese Finance Minister Shunichi Suzuki said on Tuesday he was closely monitoring the currency’s movements and would take “thorough measures as necessary.”
rose to 7.2386 but was little changed even as data showed the economy grew more than expected in the first quarter.
But that was overshadowed by softer-than-expected March data, which showed China’s economic performance may already be slowing after a strong start to the year.
The People’s Bank of China also set a weak midpoint for the yuan, indicating the central bank has limited ability to continue supporting the Chinese currency.