The dollar retreated on Friday amid concerns about the strength of the US economy after higher-than-expected producer prices raised expectations that the Federal Reserve will desist from cutting interest rates until at least the middle of the year.
The rise in producer prices reported by the Labor Department was the largest in five months and followed a hotter-than-expected report on Tuesday for consumer prices last month.
But data on Thursday for US retail sales in January showed the sharpest drop in 10 months, giving some in the market pause as the report suggested slowing momentum in consumer spending as sales were revised lower in November and December too.
“The FX side of things tends to focus on the fact that there’s still somewhat of a question mark when it comes to real activity in the US economy,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
The currency market’s paring of gains was “a bit of a bizarre reaction,” Rai said. It also might be positioning ahead of the long US holiday weekend and a divergence with the Treasury market of how to interpret the economic data, he said.
US markets will be closed on Monday for the Presidents’ Day holiday.
The dollar index a gauge of the greenback’s value versus six major currencies, was on track for a fifth straight week of gains. It last rose 0.01 percent to 104.26, and was up about 0.12 percent for the week.
Fed funds futures have priced in just a 10.5 percent chance of a rate cut in March and 33.7 percent odds of easing in May, according to CME Group’s FedWatch Tool. At the beginning of the year odds that the Fed would cut rates in March were 79 percent. – Reuters
