US Dollar Dips as Chinese Growth Data Bolsters Risk Sentiment

The US dollar has edged lower in early European trade as robust Chinese growth data enhances risk sentiment. As a result, the Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.1% to 101.707 after a 0.5% overnight increase.

China's Strong Economic Recovery

China's post-pandemic recovery appears to be firmly on track, with the world's second-largest economy reporting a 4.5% year-on-year expansion in the first quarter. This figure surpasses the anticipated 4% growth and marks a significant acceleration from the previous quarter's 2.9%. Additionally, retail sales soared over 10%, reaching a near two-year high and reinforcing optimism about the country's ongoing recovery.

The encouraging Chinese data has fueled optimism about the global economic recovery, consequently undermining the safe-haven dollar. The US currency had gained earlier on Monday following positive manufacturing activity data from New York state, which raised expectations of a Federal Reserve interest rate hike in May.

Euro Gains Despite High Inflation

The EUR/USD pair rose 0.1% to 1.0941, remaining below its one-year high of 1.1075 from last week. This increase comes despite the European Central Bank's (ECB) plans to continue raising interest rates this year, as inflation remains well above its target. ECB President Christine Lagarde stated that any discussion about altering the 2% inflation goal could only occur once inflation has been reduced to that level.

British Pound Rises Despite Unemployment Increase

The GBP/USD pair climbed 0.2% to 1.2392, despite weaker-than-expected UK unemployment data for February. The unemployment rate rose to 3.8%, up from 3.7%. Nevertheless, the Bank of England is expected to increase interest rates by 25 basis points at its next meeting, given the persistently high inflation rates.

Mixed Performance Among Other Currencies

The AUD/USD pair rose 0.5% to 0.6732, as the Reserve Bank's recent meeting minutes indicated the possibility of further interest rate hikes despite an April pause. Meanwhile, the USD/JPY fell 0.1% to 134.31, and the USD/CNY dropped 0.1% to 6.8716, reflecting the influence of the strong Chinese growth data.

Here are the key economic events to shape currency markets on Tuesday:

RBA Meeting Minutes to Impact AUD

The Reserve Bank of Australia's meeting minutes will be released at 04:30, potentially providing insights into the central bank's stance on monetary policy, which could influence the Australian dollar.

Chinese Data Releases to Drive CNY Movement

A series of Chinese economic indicators will be published today, including GDP, Fixed Asset Investment, Industrial Production, and Unemployment Rate. Positive results may bolster the Chinese yuan and enhance global risk sentiment.

UK Employment Data to Affect GBP

The UK will release a series of employment data, including the Average Earnings Index, Claimant Count Change, Employment Change, and Unemployment Rate. Stronger-than-expected figures may lead to an appreciation in the British pound.

German ZEW Data and EUR Trade Balance to Influence Euro

German ZEW Current Conditions and Economic Sentiment, along with the Eurozone Trade Balance, will be released at 12:00 GMT3+. Positive data could strengthen the euro and indicate an improving European economy.

US Housing Data to Impact USD

US Building Permits and Housing Starts data will be published at 15:30 GMT3+. The market will closely monitor these figures to gauge the health of the US housing sector, which could sway the US dollar.

Canadian Inflation Data and BoC Speeches to Affect CAD

At 15:30, Canadian Core CPI and CPI data will be released, followed by speeches from BoC Governor Macklem and Senior Deputy Governor Rogers at 18:00 and 18:30, respectively. These events may significantly impact the Canadian dollar, depending on the inflation data and the Bank of Canada's policy outlook.

FOMC Member Bowman's Speech to Sway USD

FOMC Member Bowman is scheduled to speak at 20:00, potentially providing clues on the Federal Reserve's future monetary policy, which could impact the US dollar.

API Weekly Crude Oil Stock to Influence Oil-Linked Currencies

The API Weekly Crude Oil Stock data will be released at 23:30, which may affect oil-linked currencies like the Canadian dollar, Norwegian krone, and Russian ruble, depending on the inventory changes.