Gertrude Chavez-Dreyfus
NEW YORK (Reuters) – The dollar fell for a second straight session on Thursday after mixed data showed the U.S. economy remained on solid footing but was unlikely to prevent the Federal Reserve from starting to cut interest rates by June.
The price was last down 0.3% at 104.36. Against the yen, the dollar fell 0.5% to 149.87.
Traders are once again watching the dollar against the yen as it has surpassed 150 in the past few days, a critical level that has the market wary of possible Japanese intervention to weaken its currency.
The yen strengthened despite Japan’s unexpectedly weak gross domestic product, which saw the country lose its title to Germany as the world’s third-largest economy.
In the United States, data showed retail sales not adjusted for inflation fell 0.8% in January, far below the 0.1% decline expected based on a Reuters poll. The data was likely skewed by winter storms.
Unadjusted retail sales overall fell in January. Before the data was released, economists warned against reading too much into the sharp fall.
“Bad weather typically leads to short-term declines in high-frequency economic indicators such as retail sales and home starts, which are also likely to be weak when the January report comes out tomorrow,” said Bill Adams, chief economist at Comerica (NYSE:) Bank. in Dallas, in the comments via email.
“This weakness usually passes quickly as the weather returns to normal and people catch up on spending plans delayed by the cold and snow.”
The Fed, he added, will likely ignore the weak retail sales report for the month, especially since there is an obvious explanation for what is clearly a temporary problem.
A separate report showed that in the week ending Feb. 10, initial claims for state unemployment benefits fell by 8,000 to a seasonally adjusted 212,000. This is further evidence that the US labor market remains tight.
Other data showed U.S. industrial production fell 0.1% in January, below forecasts. This is the lowest figure since October.
However, the Empire State Manufacturing Index improved to -2.4 in February, up 41.3 points after falling from -29.2 points to -43.7 in January, which was the lowest since May 2020.
At the same time, the Philadelphia Fed manufacturing index rose 15.8 to 5.2 in February, well above forecast, after rising 2.2 ticks to -10.6 in January. The February reading was the highest since August’s reading of 7.7.
Even with these decent numbers in the US, the dollar has fallen. Against the Swiss franc, the dollar fell 0.8% to 0.8787 francs.
The euro added 0.5% to $1.0782 and sterling rose 0.2% to $1.2590.
Thierry Albert Wiseman, currency strategist at Macquarie in New York, said the dollar’s pullback was likely to be temporary.
“As long as… this divergence between the US outperformance and the rest of the world remains, there is no reason why the dollar’s performance will reverse anytime soon,” he added. “We will continue to see the dollar remain strong and perhaps strengthen a little more.”
The fed funds futures market has an 83% chance of seeing rates cut for the first time at the June meeting, according to the LSEG application.
Interest rate futures are also calling for three to four rate cuts this year, down from about five a few weeks ago.