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Dollar rises to six-week peak as strong U.S. retail sales bolster higher-rates scenario

Published 02/14/2023, 08:24 PM
Updated 02/16/2023, 03:00 PM
© Reuters. FILE PHOTO: Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

(This Feb. 15 story has been refiled to mention the full title of analyst as the head of FX risk advisory at Silicon Valley Bank in paragraph 5)

By Gertrude Chavez-Dreyfuss and Laura Matthews

NEW YORK (Reuters) - The dollar climbed to a six-week peak against a currency basket after the release of hotter-than-expected U.S. retail sales data on Wednesday, bolstering investors' expectations that the Federal Reserve would keep monetary policy tight for some time to fight stubbornly high inflation.

The greenback also ascended to a fresh six-week peak versus the yen.

Data showed that U.S. retail sales surged 3.0% last month, increasing by the most in nearly two years. The numbers for December were unrevised to show sales dropping 1.1%. Economists polled by Reuters had forecast sales would increase 1.8%, with estimates ranging from 0.5% to 3.0%.

On Tuesday, the U.S. government reported that consumer prices accelerated on a monthly basis in January, rising 0.5%, due in part to higher rental and food costs. The gain matched economists' expectations in a Reuters poll and was well above the 0.1% month-on-month rise in December. Year-on-year prices rose 6.4%, down from 6.5% in December but above economists' expectations of a 6.2% gain.

"What all this has done, is it's pushed that terminal rate, just 25 basis points higher than in January. So, now, the terminal rate has been pushed to about 5.25," said Ivan Asensio, head of FX risk avisory at Silicon Valley Bank in San Francisco, referring to the U.S. central bank's benchmark overnight interest rate.

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"It's not just that we have renewed expectations for now 25 (basis points higher) in March and then 25 as expected in May, but also the possibility that rates have to stay higher for longer. So, where is the plateau? Every day that goes by, the 2% (inflation) target for the Fed seems a bit far into the distance," he added.

In afternoon trading, the dollar index rose 0.6% to 103.90, after hitting a six-week peak of 104.11.

Against the yen, the dollar surged to 134.355 yen, the highest since Jan. 6. It was last up 0.8% at 134.16 yen.

The currency pair's consolidation around 127 has extended, wrote Shaun Osborne, chief FX strategist, at Scotiabank, and the technical picture for the U.S. dollar has developed more positively through February so far."

He added that U.S. dollar gains above the 133.10 yen zone suggest additional, corrective gains to the 136.50/137 area will follow.

The euro, meanwhile, fell 0.5% against the dollar to 1.0682.

In December, Fed policymakers' median projection saw the central bank's policy rate peaking at 5.1% this year. But interest rate futures markets have priced a peak above 5.2% hitting in July, and traders are becoming less sure that cuts are coming in 2023. Rates currently stand at 4.5% to 4.75%.

Deutsche Bank (ETR:DBKGn) economists said they now expect the Fed to raise the policy rate to as high as 5.6%, having previously expected a 5.1% peak.

Sterling dropped 1.3% to $1.2022 in the wake of data showing British inflation cooled more than expected in January to an annual rate of 10.1%, alleviating some of the pressure on the Bank of England to keep hiking interest rates.

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Also on investors' radars was an announcement by Scottish First Minister Nicola Sturgeon that she would step down after more than eight years in the job.

The Australian dollar fell 1.3% to US$0.6897. Australia's central bank chief Philip Lowe told members of parliament that rates still had a ways to rise.

Meanwhile, China's yuan traded onshore hit more than a one-month low at 6.8576 to the dollar, which was last up 0.3% at 6.8515.

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Currency bid prices at 3:36PM (2036 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.9000 103.2500 +0.64% 0.396% +104.1100 +103.1500

Euro/Dollar $1.0682 $1.0737 -0.50% -0.30% +$1.0745 +$1.0661

Dollar/Yen 134.1750 133.1000 +0.82% +2.35% +134.3550 +132.5500

Euro/Yen 143.31 142.89 +0.29% +2.15% +143.4300 +142.3500

Dollar/Swiss 0.9244 0.9215 +0.33% -0.01% +0.9262 +0.9214

Sterling/Dollar $1.2018 $1.2176 -1.29% -0.61% +$1.2181 +$1.1990

Dollar/Canadian 1.3398 1.3338 +0.45% -1.11% +1.3440 +1.3336

Aussie/Dollar $0.6898 $0.6985 -1.25% +1.20% +$0.6989 +$0.6865

Euro/Swiss 0.9872 0.9893 -0.21% -0.23% +0.9911 +0.9865

Euro/Sterling 0.8885 0.8820 +0.74% +0.46% +0.8902 +0.8817

NZ $0.6279 $0.6338 -0.96% -1.14% +$0.6338 +$0.6253

Dollar/Dollar

Dollar/Norway 10.2115 10.1295 +0.88% +4.13% +10.2435 +10.1585

Euro/Norway 10.9111 10.8768 +0.32% +3.98% +10.9618 +10.8589

Dollar/Sweden 10.4384 10.3516 +0.32% +0.30% +10.4678 +10.3521

Euro/Sweden 11.1521 11.1165 +0.32% +0.02% +11.1855 +11.1137

Latest comments

The Dollar going up means orders from overseas clients going down. Have fun now, suffer later. Old American adage...
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