NEW YORK: The US dollar fell on Thursday as traders digest a slew of mixed economic data to gauge the outlook for the Federal Reserve’s interest rate cuts this year.
US retail sales rose 0.4% last month after upward revisions the previous month, data from the Commerce Department’s Census Bureau showed.
Meanwhile, the number of Americans filing new applications for unemployment benefits increased more than expected last week, but remained at levels showing a healthy labor market.
The Philadelphia Fed Business Index, which jumped to 44.3 in January, was the lone surprise as the forecast was for a reading of minus 5.
The US dollar index - a measure of the value of the greenback relative to a basket of foreign currencies - pared earlier gains and was last down 0.09% at 108.92.
“I think retail sales didn’t really have a significant impact,” said Vassili Serebriakov, FX strategist, at UBS Investment Bank.
“CPI had an impact initially in terms of weakening the dollar, but that was quickly reversed. And I think that just indicates that the market is still strongly biased to buy the dollar on dips, probably in anticipation of the inauguration next week, and the potentially dollar-supportive policies of the incoming Trump administration, including the possibility that tariffs will be raised relatively quickly.”
Donald Trump returns to the White House next week, and analysts expect some of his policies to boost growth as well as increase price pressure. The focus of the day will be the nomination hearing of Trump’s choice of Scott Bessent to head the Treasury Department.
Bessent, facing questioning before the US Senate Finance Committee, is expected to keep a leash on US deficits and to use tariffs as a negotiating tool, mitigating the expected inflationary impact of economic policies expected from the Trump administration.
His testimony “could create some potential headlines for the bond market and in turn the FX market,” said Erik Bregar, director of FX & precious metals risk management, at Silver Gold Bull in Toronto. Traders who have been growing more worried about inflation responded with relief to Wednesday’s US data, buying stocks and sending benchmark 10-year Treasury yields down more than 13 basis points.
Treasury yields slipped on Thursday, after Federal Reserve Governor Christopher Waller said three or four interest cuts this year were still possible if US economic data weakened further.
Analysts flagged that the US consumer price data was better than expected, but still showing inflation above Federal Reserve targets. The figures provided the US bond market with an excuse to do some downside testing for yields.
Bregar said the arguably mixed data was the reason there was choppy trading in the euro dollar pair following Thursday’s data release.
The euro was flat at $1.029, while sterling was down 0.15% at $1.2226 against the dollar, having also earlier dropped sharply against the yen on Thursday as investors focused on monetary policy divergence after last week’s selloff in gilts and the pound.
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