Dollar hits fresh one month high

NEW YORK: The dollar index hit a fresh one-month high on Wednesday after US retail sales data indicated the economy remained on solid footing, denting the market outlook for any potential rate cuts from the Federal Reserve.

Retail sales rose 0.6% last month after an unrevised 0.3% gain in November, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales gaining 0.4%.

While markets still see the Fed’s first downward move in rates likely to come in March, expectations for a cut of at least 25 basis points (bps) are down to 57.1%, according to CME’s FedWatch Tool, from 65.1% on Tuesday.

“If we look at this morning’s retail sales report, that points to growth on virtually every possible level and across every aggregate within the consumer spending sphere,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“That points to underlying inflation pressure remaining sticky for longer, and that coincides with the fact that we’re seeing a concerted push from policymakers to anchor market expectations out into the middle of the year for the first cut, and also to warn markets that the cadence of rate cuts is going to be slower than anticipated.” The dollar index which tracks the greenback against a basket of currencies of other major trading partners, was up 0.21% at 103.51, after climbing to 103.68, its highest since Dec. 13.

The greenback jumped 0.67% jump on Tuesday, it’s biggest one-day percentage climb since Jan. 3, driven higher in part by comments from Fed Governor Christopher Waller, who said that, while the US was “within striking distance” of the Fed’s 2% inflation goal, the central bank should not rush towards cuts in its benchmark interest rate until it was clear lower inflation would be sustained.

Also supporting the dollar was data showing China’s economy grew 5.2% in 2023, slightly more than the official target, but it was a far shakier recovery than many analysts and investors expected while its property crisis deepened.

The dollar touched 148.47 against the rate-sensitive Japanese yen, its highest since Nov. 30, and was last up 0.67% at 148.17. The greenback also hit a two-month high of 7.2321 against China’s offshore yuan.

The euro was down 0.14% to $1.0859 against the dollar, on the heels of a 0.67% drop in the prior session, even as European Central Bank (ECB) policymakers try to dispel expectations of looming rate cuts.

Dutch central bank chief Klaas Knot told CNBC on Wednesday that investor bets for ECB rate cuts were excessive and possibly self-defeating because they could actually hold back monetary easing.

Sterling was last trading at $1.266, up 0.17% on the day, on track for its first gain against the dollar after three straight sessions of declines, as a rise in British inflation reinforced market expectations that the Bank of England would be slower to cut rates than other central banks.

In cryptocurrencies, Bitcoin was down 1.27% to $42,584.