SINGAPORE- The dollar caught its footing on Thursday as strong US retail data cast doubt on market bets that inflation is in retreat and US interest rates need not rise too much further.
The euro was also firm after NATO said a missile that crashed inside Poland was probably a stray fired by Ukraine’s air defenses, and not a Russian strike.
At $1.0394, the euro was close to breaking above its 200-day moving average. The Australian and New Zealand dollars fell slightly overnight, in response to the US data, and were steady in morning trade on Thursday.
The Aussie last bought $0.6742 and the kiwi $0.6152. The Japanese yen hovered at 139.25 per dollar, while the Chinese yuan nursed losses at 7.1033 per dollar after China’s central bank promised to keep local liquidity ample and to guide commercial loan growth.
On Wednesday US data showed October retail sales rose 1.3 percent, compared with economist expectations for 1.0 percent, a healthy signal but one that dented hopes for a pause in rate increases.
“Markets have positioned for the Fed to pivot,” said Commonwealth Bank of Australia currency strategist Kim Mundy. “The US retail sales data very much challenges that narrative … the US economy is driven by the consumer and if the consumer is still spending, it suggests it’s going to take inflation longer to ease.”
This year’s long rally in the US dollar made a sharp reversal last week when US inflation came in a bit cooler than expected and stoked bets the pace of price rises has peaked.
Hawkish remarks from Federal Reserve officials overnight also put some cold water on hopes for a shift, though, with San Francisco Fed President Mary Daly – until recently one of the most dovish officials – saying a pause was off the table.
Kansas City Fed President Esther George told the Wall Street Journal that policymakers must be “careful not to stop too soon” on rate increases and that avoiding a recession might be difficult. – Reuters
