During today's Asian trading, the US dollar rose moderately against major currencies, retreating from the 5-week low reached yesterday amid statements by Fed Chairman Powell. The recovery of the dollar was caused by partial profit-taking and correction of positions by investors ahead of the publication of US data.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.20% to 104.40.
Yesterday, Powell said that the three U.S. inflation readings over the second quarter "add somewhat to confidence" that the pace of price increases is returning to the Fed's target in a sustainable fashion. According to the CME FedWatch Tool, markets see a 8.8% probability of a 25 basis point rate cut at the Fed meeting in July, a 100% probability of a rate cut in September, and a 100% probability of monetary policy easing in November. Meanwhile, today investors will focus on retail sales data for June. Financial markets are expecting some signs of a slowdown in consumer activity, which may indicate a decrease in demand-side pressure - which supported prices for services - and clears the way for a rate cut later this year. Retail sales data may not provide a clear picture of this issue, simply because the decline in spending on goods has long been evident in retail sales. Experts expect that lower car costs have put pressure on overall retail sales. As for sales excluding cars, forecasts suggest an increase of 0.1%. The rest of the report can confirm what is already known: spending on goods has lost momentum, but households are still spending. According to forecasts, retail sales were unchanged in June after rising 0.1% in May.
The Japanese yen fell 0.3% against the US dollar, keeping traders wary of further intervention by Tokyo. The Japanese authorities continued to warn of a fall in the yen, and Chief Cabinet Secretary Yoshimasa Hayashi said they were ready to take all possible measures in the foreign exchange market. Traders suspect the government intervened again last week to support the yen following the release of a weaker-than-expected US inflation report.
The pound consolidated against the US dollar as investors took a wait-and-see attitude ahead of tomorrow's release of CPI data, which will provide clues about the prospects for the Bank of England's monetary policy. Economists expect consumer inflation to rise by 0.2% m/m in June after increasing by 0.3% m/m in May.