Key points:
The dollar experienced a mixed performance on Wednesday following a brief boost from better-than-expected U.S. retail sales data. Traders remained focused on the prospect of Federal Reserve rate cuts potentially as early as September.
The New Zealand dollar (NZDUSD) rose as data revealed higher-than-expected non-tradable inflation in the second quarter, despite the headline figure missing expectations. The kiwi gained 0.46% to $0.6078.
Data on Tuesday showed that U.S. retail sales were unchanged in June, with a decline in auto dealership receipts offset by broad strength elsewhere. This demonstrated consumer resilience and bolstered economic growth prospects for the second quarter.
While the dollar initially rose on this data, it failed to maintain its gains as the report did little to change market expectations for a Fed rate cut in September, which is now fully priced in.
Against the greenback, the euro (EURUSD) last bought $1.0897, staying near a roughly four-month high reached earlier in the week. The dollar index (DXY) hovered near a one-month low at 104.26, while the Australian dollar (AUDUSD) fell slightly by 0.05% to $0.6730.
See: The dollar index wobbles, hovering at a one-month low as seen on the VT Markets app.
The current market sentiment leans towards a “Goldilocks economy,” where retail sales remain solid and consumer demand is strong. However, inflation data is crucial, indicating that the Fed may cut rates soon.
Sterling (GBPUSD) remained relatively unchanged at $1.2972 ahead of the UK inflation data due later on Wednesday. Expectations are for consumer prices to have cooled further in June, which could strengthen the case for an imminent easing cycle from the Bank of England.
The June UK inflation report is expected to reinforce the likelihood of an interest rate cut at the Bank of England’s August meeting. The headline consumer price index is projected to ease to 1.9% year-on-year, driven by disinflationary pressures in both core goods and services.
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The yen (USDJPY) was last 0.1% lower at 158.47, as traders remained alert for any intervention from Japanese authorities to support the currency after likely intervention last week. Bank of Japan data released on Tuesday suggested Tokyo may have spent 2.14 trillion yen ($13.5 billion) intervening last Friday. Combined with the estimated amount spent on Thursday, Japan is suspected to have bought nearly 6 trillion yen via intervention last week.
As the markets navigate these mixed signals, the outlook for the dollar remains uncertain, influenced heavily by upcoming economic data and central bank actions. The cautious sentiment among traders highlights the delicate balance central banks must strike in managing inflation while supporting economic growth.
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