Dollar Rebounds Amidst Uncertainty, Sterling Slips on Weak Retail Sales Data

The U.S. dollar gained slightly on Friday, setting the stage for a positive week, while the British pound retreated following the release of disappointing retail sales figures.

Dollar Finds Support:

The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.2% to 104.065, recovering from recent four-month lows and aiming for its first weekly gain in three weeks.

This rebound is attributed to mixed signals in U.S. economic data, specifically regarding labor and manufacturing, which have raised doubts about the timing of potential Federal Reserve rate cuts. Additionally, the dollar has been boosted by its safe-haven appeal amid deteriorating U.S.-China relations and mounting uncertainty surrounding the U.S. presidential race.

Analysts at ING suggest that if President Biden were to step aside from his reelection bid, the dollar could weaken further as Democrats might have a better chance of retaining the Senate, leading to a “Trump Constrained” scenario.

Sterling Loses Ground:

The British pound dipped 0.2% to $1.2914, retreating from its recent one-year high. This decline followed the release of weaker-than-expected UK retail sales data for June, indicating that high interest rates are impacting consumer spending.

Combined with recent data showing slowing wage growth and inflation at the Bank of England’s 2% target, the likelihood of an August rate cut has increased to 43%.

Euro and Yen Slip:

The euro also fell 0.2% to $1.0878, moving further away from its four-month peak reached on Wednesday. This decline came after the European Central Bank maintained interest rates at its recent meeting, despite market expectations of two rate cuts before the end of the year.

In Asia, the USD/JPY pair saw a 0.1% decrease to 157.29 after Japanese consumer price index inflation came in softer than expected for June, raising questions about the Bank of Japan’s ability to further raise interest rates at its upcoming meeting.

The USD/JPY pair had experienced a sharp drop earlier in the week, sparking speculation of Japanese government intervention in currency markets.

Chinese Yuan Under Pressure:

The USD/CNY pair rose 0.1% to 7.2674, approaching levels last seen in November 2023. The yuan has been weakened by recent reports suggesting the U.S. is considering stricter trade sanctions on China’s technology and chipmaking sectors, a move that could trigger retaliatory measures from Beijing.

Overall, the dollar’s recovery and the volatility in other major currencies highlight the ongoing uncertainties surrounding global economic and political landscapes. As investors await further clarity from central banks and monitor geopolitical developments, the currency markets are expected to remain dynamic in the coming weeks.