Dollar Holds Near Five-Week High on Strong US Retail Sales Data
The dollar is maintaining its position near a five-week peak against major currencies, following the release of robust US retail sales data. This data has added to expectations that the Federal Reserve will not rush to lower interest rates. The US dollar index, which measures the currency against a basket of six rivals, remains steady at 103.33. It reached 103.69 on Wednesday, the highest level since December 13.
Traders have adjusted their expectations for a first Federal Reserve rate cut by March to 61 percent, down from 65 percent on Tuesday, according to CME’s FedWatch Tool. However, the market still anticipates around 145 basis points of cuts by the end of the year. This is despite Fed officials, including Governor Christopher Waller, pushing back against expectations of rapid policy loosening.
Niels Christensen, chief analyst at Nordea, commented on the strong retail sales report, stating that it indicates there is no need for aggressive rate cuts. Lower rate cut expectations and risk-off sentiment are positive for the dollar.
The dollar recently reached 148.525 yen, the highest level since November. It is currently trading 0.2 percent lower at 147.778 yen. Investors have been scaling back their hawkish Bank of Japan wagers due to the recent earthquake in central Japan. The Bank of Japan will meet on policy next week.
Shoki Omori, chief Japan desk strategist at Mizuho Securities, predicts that the dollar-yen pair will float between 145 and 150 in the near term. If the BOJ maintains its dovish message and Fed Chair Jerome Powell adopts a similar stance at the upcoming policy meeting, the dollar could surpass 150 yen by February.
The euro remains flat at $1.0881 after bouncing back from a five-week low on Wednesday. ECB President Christine Lagarde’s comments to Bloomberg, suggesting majority support among ECB officials for a summer interest rate cut, have supported the euro.
Sterling has gained 0.1 percent against the dollar, reaching $1.26889. This follows a rally on Wednesday after data revealed an unexpected acceleration in inflation in December. The British currency’s three-day decline against the greenback was halted by Wednesday’s 0.3 percent jump, limiting gains for the dollar index.
The Australian dollar is relatively unchanged at $0.6555. It recovered from earlier losses when data showed a surprise drop in employment in December, indicating that rates may have peaked in the country.
Matt Simpson, senior market analyst at City Index, notes that there is technical support around $0.6520 for the Australian dollar. However, the jobs report does not provide a compelling reason to be bullish on the currency. The next directional move for the Australian dollar will depend on Fed expectations and the strength of the US dollar.
In conclusion, the dollar remains strong against major currencies due to positive US retail sales data and reduced expectations of rate cuts by the Federal Reserve. The dollar-yen pair is expected to fluctuate between 145 and 150 in the near term, while the euro and sterling show mixed performance. The Australian dollar is stable but lacks a clear direction, with its movement dependent on Fed expectations and the strength of the US dollar.
