Currencies: Dollar inches higher as European data disappoints

The U.S. dollar edged higher against its rivals Tuesday, helped by disappointing data out of Europe and a lack of fresh geopolitical headlines.

A flurry of Federal Reserve speakers and U.S. data later in the session could drive the dollar action on Tuesday.

What are currencies doing?

The ICE U.S. Dollar Index DXY, +0.20% a measure of the buck against six rivals, inched 0.2% higher to 89.640, rebounding slightly from a 0.4% loss on Monday. Meanwhile the broader WSJ U.S. Dollar Index BUXX, +0.14%  rose 0.2% to 83.66.

The British pound GBPUSD, -0.3348%  touched a high of $1.4377 earlier, its highest level since the U.K.’s Brexit vote in June 2016. But as the session went on, sterling lost its advantage and slipped to $1.4294, down from $1.4338 late Monday in New York.

The euro EURUSD, -0.2504%  fell to $1.2340 compared with $1.2381 on Monday.

Against the Japanese yen USDJPY, -0.11% the dollar was little changed versus Monday, buying ¥107.10.

The Australian dollar AUDUSD, -0.1542%  dipped against its U.S. rival, after minutes from the most recent meeting of the Reserve Bank of Australia stressed that interest rates would be on hold for some time. One Aussie dollar last bought $0.7767, down from $0.7782 late Monday in New York.

Read: How Australia got wedged between the U.S. and China in trade war

In Asia, the onshore and offshore markets for China’s yuan continued to move in opposite directions, with the dollar buying 6.2826 onshore USDCNY, -0.0079% down 0.2%, and 6.2765 offshore USDCNH, +0.1644% up 0.2%.

Versus the Hong Kong dollar USDHKD, +0.0076% the buck was little changed at 7.8500.

What is driving the market?

It may be a “turnaround Tuesday,” but it’s a muted one in the foreign exchange market, as the dollar flipped into positive territory and climbed or was unchanged versus major rivals.

San Francisco Fed President John Williams, who has said he backs three or four gradual interest rate rises this year, said that he worried about the continued uncertainty from worries surrounding the trade spats the U.S. is finding itself it.

A decline in the pound and euro gave the dollar an additional push, following disappointing data. In the U.K., wages grew 2.8% in February, slightly above inflation, but missing forecasts of 3% and casting doubt over prospects for a May rate increase by the Bank of England. Meanwhile in Germany, the ZEW economic sentiment indicator for April slumped and missed expectations.

China’s central bank on Tuesday cut the amount of reserves commercial banks are required to hold by 1 percentage point effective April 25, freeing up more than $200 billion for the institutions to lend and repay short-term loans.

Elsewhere, Chinese government data showed gross domestic product grew 6.8% from a year earlier in the first quarter, matching the growth rate seen in the fourth quarter of last year.

Staying in Asia, the Hong Kong Monetary Authority stepped in to prop up the exchange rate of the Hong Kong dollar once more, having now bought a cumulative $2.4 billion to keep the currency from weakening against the greenback.

What are strategists saying?

“The dollar edged higher against a basket of major currencies on Tuesday. This is unlikely to be the result of a change of sentiment towards the dollar, but rather an indication that a technical bounce is in play,” said Lukman Otunuga, research analyst at FXTM.

“The dollar is trading generally higher on the session as of writing but that comes after a fairly decent rebound from fairly soft levels,” wrote Scotiabank strategists Shaun Osborne and Eric Theoret. “President Trump’s tweet-focus on currency issues fits with the protectionist bent to his administration’s broader policy focus and represents a further drag to the big dollar’s overall performance, even if the substance of the comment on the yuan and ruble was factually incorrect.”

Read: Trump’s ‘devaluation’ blast made awkward by weak dollar: analysts

“Our bottom line from today’s [U.K.] labor market report is that employment remains robust but wage growth is subdued despite the pickup in the annual growth rate. It won’t stop the monetary policy committee from increasing the bank rate by 25 basis points on 10 May but, in our view, after May the MPC will remain on hold for the rest of the year as CPI inflation moderates,” said Daniel Vernazza, chief U.K. economist at UniCredit in a note.

What is on the economic docket?

Housing starts for March came in at a 1.32 million annual pace, beating the consensus estimate of 1.255 million, while building permits came in at a 1.35 million pace in the same month, up from 1.298 million.

Industrial production capacity jumped to 78% in March, the highest level in three years, while manufacturing rose 0.1% in March following a 1.5% gain in February.

In remaining Fed speakers, Dallas Fed President Rob Kaplan is scheduled to appear at an International Economic Forum of the Americas event in Coral Gables, Fla. at noon. Chicago Fed President Charles Evans is due to speak on the economy and monetary policy to the Chicago Rotary Club at 1:10 p.m.

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