Dollar rises on reassuring data, euro slips

NEW YORK: The dollar rose against the euro on Thursday, pulling the common currency back from a seven-month peak, after US economic data eased fears of a recession risk and dampened expectations for aggressive interest rate cuts.

US retail sales rose more than expected in July, a sign that demand is not collapsing and could prompt financial markets to dial back expectations for a 50 basis points rate cut next month. Additionally, fewer Americans than expected filed for unemployment benefits, suggesting an orderly labor market slowdown remained in place, though laid-off workers are finding it a bit difficult to land new jobs.

The European common currency fell 0.33 per cent versus the dollar at $1.0976. It reached $1.10475, its highest level this year, on Wednesday, as markets digested US inflation numbers.

The dollar index was last at 102.96, rising 0.35 per cent and moving away from the eight-month low of 102.15 it touched last week.“The retail sales figures are definitely good news, and I’d expect we might see some response in equities as well as USD, which is making a clear move stronger on the heels of today’s release,” said Helen Given, associate director of trading at Monex USA.

“To me, however, the bigger story for USD might be hidden in the jobless claims, which were for the second week in a row below expectations on both the initial and continuing fronts,” she added.

“This gives more license to the school of thought that July’s exceptionally poor nonfarm payroll data may have been a sort of flash in the pan, and the panic surrounding the Fed last week may have been just that: a panic.”

The pound was up 0.16 per cent at 1.2836, as data showed Britain’s economy grew 0.6 per cent in the second quarter of 2024, in line with economists’ expectations and building on a rapid 0.7 per cent recovery in the first quarter of the year.

The pound also strengthened on the euro, which dipped 0.49 per cent to 85.42 pence. Today’s US releases build on the consumer price index, which rose moderately, in line with expectations, and the annual increase in inflation slowed to below 3.0 per cent for the first time since early 2021.

The figures add to the mild increase in producer prices in July in suggesting that inflation is on a downward trend, although traders now think the Fed will not be as aggressive on rate cuts as they had hoped.

“(The retail sales) results should provide reassurance on growth and the consumer outlook,” said David Doyle, head of economics at Macquarie. He still expects a 25bps cut in September.Markets are now pricing in a 72.5 per cent chance of a 25bps cut next month and a 27.5 per cent chance of a 50bps reduction, the CME FedWatch tool showed.

Traders were evenly split at the start of the week between the two cut options following last week’s sell-off.The yen was at 148.9 per dollar, inching away from the seven-month high of 141.675 per dollar touched during last week’s market mayhem and remaining well beyond the 38-year lows of 161.96 it was rooted to at the start of July.

Bouts of intervention from Tokyo early last month and then a surprise rate hike from the Bank of Japan at the end of July wrong-footed investors who bailed out of popular carry trades, lifting the yen.