US retail sales were robust at the end of 2023. This boosts the US economic outlook and reduces the prospect of Fed interest rate cuts.

The US dollar has posted a good performance since the beginning of this week. The greenback was boosted by the hawkish discourse of a Fed official then received additional catalysts from the release of US retail sales data. The US Dollar Index (DXY) was observed to be resilient in the 103.50s range at the start of the New York session on Thursday (January/18).

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On Wednesday, the US Department of Commerce reported that US retail sales rose 0.6% in December 2023, higher than the consensus estimate of just 0.4%. Similarly, core retail sales grew twice as fast as expected.

Retail sales data at the end of the year usually increases seasonally due to Christmas and New Year celebrations. This time, the data was also boosted by an increase in motor vehicle sales - signaling that people's purchasing interest remains strong despite very high interest rates.

The positive retail performance at the end of last year prompted economists to raise their projections for US economic growth. Fed officials are still likely to cut interest rates this year, but the better economic situation may allow them to delay the implementation.

"The economy is still flying high enough and economists can take down those recession forecasts this year," said Christopher Rupkey, chief economist at FWDBONDS in New York. "For Fed officials, the economy is not too hot and not too cold, but it is just right perhaps for a few interest rate cuts in 2024."

CME's FedWatch data shows the odds of a rate cut in March have dropped from 76.9% to 62.2%, following the circulation of Federal Reserve Governor Christopher Waller's statement. The odds declined further to just 53% after this US retail sales data was released. Correspondingly, the US dollar exchange rate strengthened.

Despite some weaknesses, some of the other US economic data released on Thursday also tended to be positive. Building Permits, Housing Starts, and jobless claims were recorded better than consensus estimates. Only the Philadelphia Manufacturing Index displayed a disappointing performance.