TOKYO/SYDNEY, Aug 14: The dollar held broadly firm on Wednesday as traders turned their attention to the next batch of U.S. Economic data that could make or break the case for the Federal Reserve to start trimming its stimulus as early as next month.
The dollar’s index against a basket of currencies stood near one-week highs touched on Tuesday, helped by upbeat U.S. Retail sales data that sent Treasury yields sharply higher.
The data fueled talk of an imminent reduction of the Fed’s $85-billion-a-month bond-buying programme, but further gains are seen hinging on upcoming figures on U.S. industrial output, inflation and housing later in the week.
The dollar index stood firm at 81.80, having climbed 0.5 percent overnight and almost one percent in the past three sessions.
‘We think the Fed will start reducing quantitative easing in September unless we see surprisingly weak data, particularly on payrolls,’ said Shinichiro Kadota, FX strategist at Barclays in Tokyo.
The latest boost to the dollar came from a robust 0.5 percent increase in U.S. Core retail sales, the biggest gain since December.
That led to a 9 basis-point jump in 10-year Treasury yields to 2.72 percent, so testing a huge chart level around 2.75 percent. A break there could ultimately unleash a move toward 3 percent.
Given that various Fed officials have repeatedly said the timing of reducing stimulus depends on the strength of the U.S. Recovery, traders say the market will be extra sensitive to a series of data due later in the week.
Wednesday will see wholesale price data while Thursday’s industrial production and consumer inflation reports are likely to draw more attention.
The euro held steady at $1.3275, off a high of $1.3316 on Tuesday, though supported by a stronger reading of German investor sentiment.
Traders reported stop-loss sell orders under $1.3230 and a break there could see a rewind to the $1.3155/85 zone.
The euro got a lift, particularly against the yen after data showed France’s economy grew 0.5 percent in April-June, handily surpassing market expectations of 0.2 percent growth. German GDP also beat expectations with quarter-on-quarter growth of 0.7 percent, helping to further underpin the euro.
The common currency rose 0.2 percent to one-week high of 130.535 yen, extending gains from the week’s low at 127.95.
The immediate focus for the euro is flash GDP estimate of the euro zone due at 0900 GMT, which is expected to show the currency bloc is finally recovering from recession after six quarters of contraction.
The dollar has risen to as high as 98.425, a gain of 0.2 percent from late U.S, levels, though traders said a rise beyond 98.50 yen looks difficult in the near term due to offers from Japanese exporters, who left sell orders around that level for their obon holiday period this week.
‘The dollar looks firm on the whole but it is capped by Japanese exporters’ offers. Flows are limited and there’s no follow-through buying in Asia,’ said Takahiro Suzuki, vice president of forex at Nomura Securities.
The New Zealand dollar popped higher after data on domestic retail sales blew past all expectations. The kiwi firmed to $0.7988, and last stood at $0.7984, up about 0.2 percent on the day.
Sales volumes jumped 1.7 percent for the second quarter while core sales climbed by the most since 2006. The upbeat result underlined expectations that the Reserve Bank of New Zealand could be one of the first central bank in the developed world to actually start tightening policy.
‘Very strong number, when you look across the activity indicators, things are definitely travelling at a very brisk pace,’ said Ben Jarman, an economist at JPMorgan.
‘We do think the RBNZ must be holding a hiking bias, it’s just a question of how long they can stay on hold for.’ (AGENCIES)
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