The dollar rose on Tuesday, marking its second consecutive daily gain, after retail sales data exceeded expectations. Although the data was firmer than anticipated, it remained soft enough to maintain expectations for a Federal Reserve rate cut this year.
U.S. retail sales were flat in June, surpassing the expectations of economists polled by Reuters, who had predicted a 0.3% decline. A drop in receipts at auto dealerships was balanced by strength in other sectors, demonstrating consumer resilience and boosting economic growth prospects for the second quarter.
“It’s not so much the overall number, but the ex-autos figure, which was up considerably more than expected,” said Joseph Trevisani, senior analyst at FX Street in New York. “Auto sales are being depressed by interest rates, but aside from that and the housing market, it looks like the consumer is still doing well, and we all know that’s the base of the U.S. economy.”
Other data showed that import prices remained unchanged in June, as a rebound in food prices was offset by lower energy prices, providing the Fed with some leeway to cut interest rates this year.
The dollar index, which measures the greenback against a basket of currencies, rose 0.07% to 104.31, though it was off its earlier high of 104.51. Against the Japanese yen, the dollar strengthened 0.28% to 158.46.
While markets see only a slim chance of a rate cut of at least 25 basis points (bps) by the Fed at its July meeting, a cut is fully priced in for the September meeting, according to CME’s FedWatch Tool.
Sterling weakened 0.07% to $1.2957 ahead of British inflation data due on Wednesday, while the euro slipped 0.03% to $1.0891 ahead of a European Central Bank (ECB) policy meeting scheduled for Thursday. The ECB is expected to keep rates steady, shifting focus to President Christine Lagarde’s comments for clues on the timing of the next rate cut following a 25 bps reduction in June.
On Monday, Federal Reserve Chair Jerome Powell stated that the second quarter’s three U.S. inflation readings “add somewhat to confidence” that the pace of price increases is returning to the Fed’s target sustainably.
The Canadian dollar strengthened 0.03% against the greenback to 1.37 per dollar, rebounding from an earlier drop of up to 0.21%, after slower-than-expected consumer price increases in June bolstered expectations of another rate cut by the Bank of Canada next week.
Cryptocurrencies rose modestly following a rally in the previous session, alongside shares of companies that could benefit from a Trump presidency, after an assassination attempt on the Republican candidate increased expectations of his potential victory in the November election. Bitcoin gained 1.58% to $64,780.28, while Ethereum rose 0.83% to $3,463.60.
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