By Peter Nurse
Investing.com - The U.S. dollar edged higher in early European trade Monday, benefiting from its safe haven status, while the Chinese yuan dipped after a batch of disappointing data from China prompted the country’s central bank to cut interest rates.
At 03:10 ET (07:10 GMT), the Dollar Index , which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 105.750, near the middle of its recent trading range.
Economic data released earlier Monday showed China’s economic growth rate unexpectedly slowing in July, as the world’s second largest economy struggled to shake off the hit to growth in the second quarter from strict COVID restrictions.
Industrial output grew 3.8% in July from a year earlier, with the growth rate below the 4.6% increase expected, while retail sales rose 2.7% from a year ago, missing forecasts for 5.0% growth and the 3.1% growth seen in June.
The People’s Bank of China lowered the rate on its one-year medium-term lending facility by 10 basis points to 2.75%, in a surprise move, resulting in USD/CNY jumping 0.3% to 6.7600.
Additionally, the Australian and New Zealand dollars retreated from near two-month highs after the weak data from China, a key trading partner. AUD/USD fell 0.5% to 0.7084, while NZD/USD dropped 0.6% to 0.6411.
While the Chinese economy is slowing sufficiently to prompt the central bank to cut interest rates, the debate in the U.S. is the extent to which thewill next hike rates.
U.S. inflation data was weaker than expected last week fueling investor hopes that the central bank could ease back on its aggressive tightening, even as a number of Fed policymakers seemed keen to continue the hawkish rhetoric.
Yet, despite Monday’s dollar gains, speculators decreased their net long U.S. dollar positions last week, according to U.S. Commodity Futures Trading Commission data released on Friday.
Elsewhere, EUR/USD fell 0.2% to 1.0237, weighed by concerns that the continent’s energy crisis, soaring inflation and the European Central Bank lifting interest rates will drag the Eurozone into recession later in the year or early in 2023.
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