The US dollar rally gained momentum from US economic data and the European interest rate announcement.
Several recent economic news items have motivated the US dollar rally. Following the release of US retail sales data and the ECB interest rate announcement, the US Dollar Index (DXY) climbed around 0.5% to a daily high of 105.30 at the beginning of the New York session on Thursday, September 14.
US retail sales for core and general merchandise categories recorded a 0.6% increase (month-over-month) in August 2023. Both surpassed the previous consensus estimates.
Several other US economic data points were also encouraging. The weekly jobless claims came in at just 220k compared to the consensus estimate of 225k. Meanwhile, PPI (Producer Price Index) grew by 0.2%, in line with expectations in August.
These various reports do not change the expectations for the Federal Reserve's interest rates. Analysts still believe that the Fed will postpone a rate hike at the upcoming FOMC meeting and only raise it once more before the end of the year. However, the US dollar stands out due to strong economic data, indicating a better situation than other major countries.
According to Greg Bassuk, CEO of AXS Investment, many investors disregard the producer inflation figures, which exceeded expectations, similar to how they reacted to yesterday's higher-than-expected consumer price index (CPI) data. He pointed out that investors are maintaining a composed stance because fluctuations primarily influence these data points in the energy and gas sector, which are known for their volatility.
According to market analysts, it is probable that the Federal Reserve won't be enthusiastic about the August inflation data. Still, it's also sufficiently subdued that they may choose not to respond. This explains why market participants are holding onto their interest rate predictions.
Furthermore, in light of the higher-than-expected consumer and producer prices in August, investors should anticipate the possibility of additional rate hikes later this year. However, for the same reasons, experts suggest that the primary focus should be monitoring other economic indicators to assess whether the economy is progressing toward a soft landing and averting a recession.
According to analysts, in light of the higher-than-expected consumer and producer prices in August, investors should be ready for additional rate hikes later this year. Nonetheless, they suggest that the primary focus should be on monitoring other economic indicators to assess whether the economy is progressing toward a soft landing and avoiding a recession, given these circumstances.
The greenback tonight is also supported by the decline of its main rival, the euro. The European Central Bank (ECB) announced its last interest rate hike of the year, causing the EUR/USD to tumble to its lowest level since June.