Dollar Strengthens on Fed Rate Cut Anticipation and Robust Retail Sales
The U.S. dollar advanced against major currencies on Tuesday after stronger-than-expected retail sales data highlighted underlying economic resilience, while investors prepared for upcoming interest rate decisions from the Federal Reserve and other central banks.According to the Commerce Department, U.S. retail sales increased by 0.7% in November, exceeding forecasts, driven by robust demand for motor vehicles and online shopping.
Markets are largely anticipating a 25-basis-point interest rate cut from the Federal Reserve at the conclusion of its two-day meeting on Wednesday, with the CME FedWatch tool indicating a 97% likelihood of such a move.
In trading against the Swiss franc, the dollar slipped 0.2% to 0.89270 amid volatility, retreating slightly from near a four-month high. Meanwhile, the euro dropped 0.24% to $1.048825, bringing its annual decline against the dollar close to 5%.
The U.S. dollar index, which measures the greenback against a basket of six currencies, edged up 0.17% to 106.97, peaking earlier in the session at 107.08.
The British pound gained ground against the dollar after data revealed stronger-than-expected wage growth in the U.K. for the three months ending in October. This data adds to speculation ahead of the Bank of England's rate decision on Thursday. Sterling rose 0.16% to $1.27040.
The Japanese yen strengthened 0.42% to 153.52 per dollar as traders reduced expectations of a rate hike by the Bank of Japan this week, instead betting on potential action in January.
The U.S. dollar edged 0.06% lower against the offshore Chinese yuan, settling at 7.287, as concerns over China's economic outlook kept 10-year bond yields near historic lows.
The Australian dollar slipped 0.6% to $0.6332, while the Swedish krona dropped 0.76% to 10.964 per dollar. The Norwegian krone also declined, losing 0.56% to 11.2052 against the greenback.
Sweden's Riksbank is widely expected to announce a rate cut of up to 50 basis points this week, while the Norges Bank is likely to maintain its current rates.
Bitcoin surged as high as $108,379.28, approaching the $110,000 milestone, before retreating slightly. It remained up 0.68% at $106,798.26.
"The market is grappling with whether it's time to bet against the dollar after its remarkable performance this year," said Marvin Loh, senior global market strategist at State Street in Boston.
"However, it’s tough to challenge U.S. exceptionalism and the dollar’s strength as we head into the new administration. Factors such as a Federal Reserve that may not appear as dovish as it did in September and persistent challenges in emerging and developed markets continue to reinforce the dollar’s status as a safe haven," Loh added.
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