Dollar stabilizes after last week's selloff; Chinese yuan hit by weak GDP  |  Author Peter Nurse

Published Jul 17, 2023 03:29AM ET - The U.S. dollar stabilized in early European hours Monday after suffering its worst weekly drop this year, while weak Chinese growth data pressured the yuan. 

At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower at 99.597, after dropping 2.2% last week, its sharpest one-week fall since November.

Dollar stabilizes after selloff

The dollar index last week fell below the 100 level for the first time since April 2022 after softer-than-expected inflation data–consumer prices on Wednesday and producer prices on Thursday–supported the view that the Federal Reserve will end its interest rate-hiking cycle after a final increase next week.

“Dollar long positions are evaporating rapidly, with PPI numbers all but confirming the disinflationary narrative in the U.S. It's hard to find a clear counterargument against the bearish dollar momentum, but the move is looking stretched, so watch for potential temporary corrections,” said analysts at ING, in a note.

The NY Empire state manufacturing index is due later in the session, to be followed later in the week by U.S. retail sales, initial jobless claims and reports on building permits, housing starts and existing home sales.

However, these numbers are unlikely to change the narrative that a 25-basis-point hike from the Fed later this month is likely to be the last one this year.

Chinese growth slows in second quarter

USD/CNY rose 0.5% to 7.1744 after data released earlier Monday showed China’s second-quarter gross domestic product grew 0.8% from the prior quarter, a substantial slowing from the 2.2% seen in the prior quarter.

On an annualized basis, GDP grew 6.3% in the second quarter, thanks largely to a lower basis for comparison from the COVID-impacted period last year, and this was lower than expectations for growth of 7.3%.

This sluggish growth has traders looking towards the Chinese government to see whether it steps up stimulus to promote economic growth.

Euro still in demand

EUR/USD rose 0.1% to 1.1238, with the euro continuing to find favor after jumping 2.4% last week to a 16-month high.

The European Central Bank is widely expected to lift interest rates once more next week, with inflation levels in Germany, the largest economy in the euro one, rising in June to 6.8% on the year, when harmonized to compare with other European Union countries.

This is well over three times the ECB’s medium-term target and suggests further rate increases may well be needed as the year progresses.

“It seems difficult to build a strong counterargument to the bearish USD narrative at this stage and while some correction after a large and possibly overstretched move is possible, the near-term outlook may stay broadly bullish on EUR/USD,” ING added.

Elsewhere, GBP/USD edged lower to 1.3081, trading just below last week's 15-month peak, while USD/JPY fell 0.2% to 138.47, with the yen boosted by falling U.S. bond yields, ahead of the Bank of Japan’s policy meeting next week.

AUD/USD fell 0.4% to 0.6809, with the Australian dollar suffering alongside the yuan given the historic trade links between the two countries.

Get The News You Want
Read market moving news with a personalized feed of stocks you care about.
Get The App

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Sign out
Are you sure you want to sign out?
Saving Changes