US$ climbs, traders focus on weak Chinese retail

London

THE US dollar strengthened on Thursday as investors focused on poor Chinese retail sales instead of its stronger than expected economic growth in Q2, with the focus now shifting to a European Union (EU) summit this weekend.

The euro remained untouched by the outcome of the European Central Bank (ECB) meeting, with monetary policy left unchanged after taking a series of unprecedented measures over the past four months to salvage an economy that is fighting the biggest recession in living memory because of the Covid-19 pandemic.

The meeting was seen as something of a non-event by analysts, who said the ECB announcement will be overshadowed by the EU summit, at which European countries are expected to vote on a 750 billion euro (S$1.19 trillion) recovery fund to revive eurozone growth.

The euro was last trading 0.1 per cent down at US$1.1401, but against the safe-haven Japanese yen the US dollar rose 0.2 per cent to 107.10. The British pound, remaining strongly correlated to risky assets, fell 0.3 per cent to US$1.2552.

Surging US Covid-19 cases dampened sentiment and weighed on equity markets, which in turn supported the greenback - a proxy for global risk sentiment.

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"No one really wants to buy a lot more (equities) here because they're concerned about a second wave of Covid-19, they're concerned about the pace of corporate earnings deterioration," said Stephen Gallo, European head of FX strategy at BMO Capital Markets. "But equally, they don't want to be massively short either because they know the central banks are active, and I think that's probably one of the reasons why we're doing this back and forth."

Simmering US-China tension also added to broad-based greenback strength. US President Donald Trump has not ruled out additional sanctions on top Chinese officials over Beijing's crackdown on Hong Kong, a White House spokesman said on Tuesday.

The New York Times also reported that his administration is considering a sweeping ban on travel to the US by Chinese Communist Party members.

China's 3.2 per cent economic growth in the past quarter easily beat market expectations of 2.5 per cent. But an unexpected drop in retail sales - for a fifth straight month - was an unwelcome harbinger of possible problems ahead for the rest of the world. The retail sales numbers show that China does not have much of a private consumption engine, Mr Gallo said. REUTERS