By Kevin Buckland
TOKYO, May 11 (Reuters) - The dollar found its feet on
Thursday while the Chinese yuan dipped to a two-month low after
more evidence of weakness in China's post-COVID recovery clouded
the outlook for the global economy.
The U.S. currency had started the day on the back foot,
sliding against the yen under the weight of lower U.S. Treasury
yields as slowing U.S. inflation bolstered confidence that the
Federal Reserve was done hiking interest rates.
But it pared those declines and erased losses against the
Aussie dollar and euro following the release of Chinese data
showing consumer inflation almost flat-lined last month, after
an unexpected decline in imports earlier in the week had already
raised a red flag.
The onshore yuan slipped as low as 6.9413 per
dollar, a level last seen on March 10.
Sterling edged down slightly to $1.2616, retreating from
Wednesday's one-year high of $1.2679. The Bank of England
releases its policy decision later on Thursday, and is poised
for a 12th straight rate hike.
"The market is trying to assess which economy is going to
slow down quicker, and is undecided how to read the latest
data," said Rodrigo Catril, senior FX strategist at National
Australia Bank.
"U.S. CPI was encouraging, and should be dollar negative,
but China CPI is a reminder of the ongoing issues there."
The dollar was 0.15% lower at 134.185 yen, after earlier
dropping as much as 0.37% to 133.895.
The 10-year Treasury yield , which the dollar-yen
pair tends to track, earlier slipped to 3.425% in Tokyo trading,
extending an 8 basis point decline from overnight, after
headline U.S. CPI printed below 5% for the first time in two
years. It was last little changed at 3.4364%.
"Yesterday's CPI was a bit of a relief, and we do expect
that the Fed is now finished hiking," said Shinichiro Kadota,
senior FX strategist at Barclays in Tokyo.
"That'll weigh on dollar-yen," with the pair potentially
weakening to as low as 130 in the near term, Kadota said.
Money market traders currently lay only 5% odds on a quarter
point hike in June, and a 95% probability of a pause. Three
quarter point cuts are priced by the end of this year. The dollar index - which measures the greenback
against a basket of six major peers, including the yen, euro and
sterling - edged 0.05% higher to 101.46.
The euro inched 0.04% lower to $1.09775, staying
close to the middle of its trading range over the past month.
Elsewhere, the Aussie dollar slipped 0.04% to
$0.6776, pulling away from Wednesday's 2-1/2-month high of
$0.6818.
New Zealand's kiwi dollar proved more resilient,
adding 0.12% to $0.6375, after earlier touching a nearly
three-month high of $0.6384.
Leading cryptocurrency bitcoin was slightly lower
at around $27,483, after dipping as low as $26,842 overnight for
the first time since March.
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(Reporting by Kevin Buckland; Editing by Lincoln Feast)
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