Dollar Feels the Pinch Following US Retail Sales Data

The US dollar weakened, with the US Dollar Index (DXY) hovering around 107.00 after Thursday’s sharp drop. Disappointing January retail sales figures (-0.9% vs. -0.1% expected) fueled speculation of potential Federal Reserve rate cuts. While December’s retail sales were revised upward to 0.7%, the January decline raised concerns about consumer spending. This negative sentiment offset slightly positive news from January industrial production, which rose 0.5% (vs. 0.3% expected), though slower than December’s 1.0% growth.

The weak retail sales data has prompted traders to reassess the Fed’s rate hike trajectory. Despite Fed Chair Powell’s emphasis on needing “tangible” progress on inflation or labor market weakening before policy adjustments, the CME FedWatch Tool now indicates a 55% probability of unchanged rates in June, reflecting market uncertainty.

US Treasury yields continued their sharp decline, with the 10-year yield falling to 4.47%, further diminishing the dollar’s appeal to investors. From a technical perspective, the DXY’s break below the 20-day Simple Moving Average (SMA) suggests a bearish shift.

A weakening Relative Strength Index (RSI) and a bearish Moving Average Convergence Divergence (MACD) confirm this negative momentum. Key support lies near the 100-day SMA at 106.30, a break of which would reinforce the short-term bearish outlook. Resistance is seen at 107.50, followed by the 20-day SMA at 108.00.