The dollar surged to a five-month high against major currencies on Tuesday, fueled by stronger-than-expected U.S. retail sales figures. This has raised concerns about potential intervention from Tokyo, as the yen languished at its lowest level since 1990.
The Chinese yuan, however, edged slightly lower despite better-than-expected GDP data for China's first quarter. This data provided a boost for policymakers aiming to bolster confidence amidst a protracted property crisis.
The robust U.S. retail sales data, exceeding expectations with a 0.7% increase, has sparked questions about the timing of the Federal Reserve's potential interest rate cuts. This follows strong employment gains in March and a rise in consumer inflation.
Markets are now pricing in a 41% chance of a Fed rate cut in July, compared to around 50% before the data release. The likelihood of a September cut has also increased to nearly 46%.
"I just see no chance of a July cut, assuming we're all looking at the same data," said Matt Simpson, senior market analyst at City Index.
The U.S. dollar index reached 106.39 on Tuesday, its highest level since November 2nd.
In contrast, the yen weakened to 154 per dollar, its weakest point in 34 years. This has put traders on high alert for potential yen-buying intervention from Japanese authorities.
Japanese Finance Minister Shunichi Suzuki stated that he is closely monitoring currency movements and will take necessary action as needed.
The onshore yuan fell to 7.2422 per dollar, its lowest level since November, before recovering slightly after official data showed China's economy grew by 5.3% in the first quarter, exceeding analysts' expectations.
However, retail sales in China missed expectations, raising concerns about consumer confidence and reflecting the uneven economic recovery.
The euro and the Australian and New Zealand dollars also weakened against the U.S. dollar, with the euro reaching its lowest level since November 2nd.