By Peter Nurse
Investing.com - The U.S. dollar slipped lower in early European trade Tuesday, handing back some of the overnight gains as healthy Chinese growth data boosted risk sentiment.
At 02:05 ET (06:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 101.707, after rising 0.5% overnight.
China's post-COVID recovery appears to be firmly on track, after data released earlier Tuesday showed that the second largest economy in the world expanded 4.5% in the first quarter year-on-year, beating forecasts for 4% growth, and registering a sharp acceleration from the previous quarter’s 2.9% reading.
Additionally, retail sales surged more than 10%, hitting a near two-year high, reinforcing hopes that the country’s post-pandemic recovery remains on course.
This news has boosted optimism about the global economic recovery, to the detriment of the safe-haven dollar.
The greenback had traded higher on Monday after data showed that manufacturing activity in New York state increased for the first time in five months, lifting expectations that the Federal Reserve will hike interest rates again at its next meeting in May.
“With the market conditions continuing to settle a little … it seems likely now that the Federal Reserve will deliver one last 25bp hike in May and then hit the pause button to wait on the effects of tighter credit conditions caused by the March banking turmoil,” said analysts at ING, in a note.
EUR/USD rose 0.1% to 1.0941, below the one-year high of 1.1075 it touched last week although the European Central Bank is widely expected to continue hiking interest rates this year with inflation still significantly higher than its inflation goal.
The ECB can discuss changing its 2% inflation goal but only after it brings down inflation to that level, President Christine Lagarde said on Monday.
GBP/USD rose 0.2% to 1.2392, after the U.K. unemployment rate rose to 3.8% in February, from 3.7%, a weaker result than expected. However, the Bank of England is still expected to hike interest rates by another 25 basis points at its meeting next month with inflation remaining highly elevated.
Elsewhere, AUD/USD rose 0.5% to 0.6732 as the minutes of the Reserve Bank’s recent meeting showed that the bank may yet hike interest rates further, despite a pause in April.
USD/JPY fell 0.1% to 134.31, while USD/CNY dropped 0.1% to 6.8716, benefiting from the strong Chinese growth data.