© Reuters.
Investing.com – The US dollar fell in early European trade on Thursday, giving up some of the previous session’s gains, after better-than-expected US retail sales indicated a possible tightening in the upcoming period.
dollar now
The dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 103.675, after hitting a six-week high of 104.11 in the previous session. Thus, the dollar lost what it gained this week after the inflation and retail sales data, as it recorded weekly increases so far of only 0.05%.
As part of a strategy aimed at reducing dependence on the dollar, especially after the US debt ceiling crisis, the Chinese dragon, the second largest economy in the world, began to increase its gold reserves without stopping. Will gold succeed in immunizing China from what it fears? Who will win gold or the dollar?
These and other questions will be answered in the following video.
Inflation and retail data
Data on Wednesday showed that US retail sales rebounded sharply in January after two consecutive monthly declines, rising 3.0% on a monthly basis compared to a 1.1% decline in December.
This, combined with stronger-than-expected US consumer inflation earlier in the week, was seen as greatly reinforcing the case that the Fed still has to proceed with tightening interest rates.
Read also
Stagnation bet
Wall Street closed higher on Wednesday as investors seemed to be betting on a relatively soft downside for the US economy, where there is steady growth and low unemployment alongside slowing inflation and rising interest rates.
Goldman Sachs (NYSE: ) this week also lowered its estimate of the chance of a US recession in the next 12 months to 25%, from 35%.
This increased confidence translated into dollar weakness in Thursday’s session as traders bought into the higher risk sentiment.
There is also a slew of US economic data scheduled for release on Thursday, including the January PPI, housing construction, jobless claims, and the Philadelphia Fed index.
ING analysts said in a note, “We believe data will continue to be a key driver of the dollar and the global risk environment, as the depth of the US economic slowdown remains the main driver of interest rate expectations, especially when it comes to the timing, size and pace of Fed easing over the medium term.”
dollar against currencies
Elsewhere, the US currency pair rose 0.1% to 1.0700, supported by President Christine Lagarde’s confirmation on Wednesday that the European Central Bank intends to raise borrowing costs by another 50 basis points next month.
Also, the US currency pair rose 0.1% to 1.2034, up after falling more than 1% in the previous session. This came on the heels of data released on Wednesday which showed that the UK’s annual headline rate of inflation slowed more than expected in January, easing pressure on the Bank of England to continue its rate hike cycle.
The JPY/USD fell 0.1% to 133.94, as Kazuo Ueda, the government’s nominee for the post of Governor of the Bank of Japan, is scheduled to appear at a parliamentary hearing next week.
The risk-sensitive USD/AUD rose 0.2% to 0.6915, reversing earlier losses after data showed the Australian labor market contracted unexpectedly in January.
