Market Analysis

The dollar steadies following gains, while retail sales strengthen the pound

Amos Simanungkalit · 18 Oct 202459.6K Views

The U.S. dollar edged lower on Friday, giving back some of the gains made in the previous session following robust retail sales data. However, it remained on course for its third consecutive weekly rise.

As of 04:35 ET (08:35 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, was down 0.2%, trading at 103.495.

Dollar Still in Demand The dollar surged to its highest level in over two-and-a-half months on Thursday, following stronger-than-expected retail sales figures that added to recent indications of continued strength in the U.S. labor market.

This prompted traders to largely anticipate a 25-basis point rate cut by the Federal Reserve next month—a smaller reduction compared to the start of the central bank’s rate-cutting cycle in September.

Additionally, the greenback gained favor amid increased expectations that Republican candidate Donald Trump could win the upcoming U.S. presidential election, potentially leading to dollar-supporting trade tariffs.

“We continue to believe that some de-risking ahead of November 5 could result in defensive flows into the dollar,” analysts at ING wrote in a note.

Sterling Rises on Retail Sales In Europe, GBP/USD climbed 0.3% to 1.3049, supported by better-than-expected British retail sales data. Retail sales in the UK unexpectedly rose by 0.3% in September, defying economists’ forecasts of a 0.3% decline.

Together with solid growth in July and August, sales for the third quarter increased by 1.9%, marking the largest rise since mid-2021.

"Even so, growth data is of secondary importance to the Bank of England at the moment. The recent surprise dip in services inflation carries more weight, indicating that consecutive rate cuts are becoming more probable,” ING added.

Euro Slightly Higher Despite ECB Cut EUR/USD inched up 0.1% to 1.0844, though the euro remained on track for a nearly 1% weekly loss following Thursday's interest rate cut by the European Central Bank (ECB).

In fact, the dollar's 3% gain over the past three weeks against the euro represents its sharpest rally since mid-2022.

The ECB reduced its interest rates by 25 basis points to 3.25%, following a similar move in September—the first consecutive rate cuts since 2011.

While this reduction was largely expected, the faster pace of cuts suggests a deteriorating economic outlook, with signs that inflation is gradually coming under control.

Yuan Benefits from GDP Data USD/CNY dropped 0.3% to 7.1037, with the currency pair retreating after hitting a near two-month high earlier this week.

China’s GDP grew by 4.6% year-on-year as anticipated, though at a slower rate than the previous quarter. While quarter-on-quarter growth slightly missed expectations, the year-to-date GDP remains below the government’s 5% annual target.

The GDP data highlights the need for additional economic support from Beijing. In recent weeks, the Chinese government has introduced various stimulus measures, including both monetary and fiscal initiatives. However, the lack of clarity regarding the timing, implementation, and scale of these measures has dampened investor optimism.

Yen Slightly Stronger USD/JPY edged down 0.1% to 150.00, with the Japanese yen firming slightly after hitting a near three-month low earlier in the session.

Data showed that Japan’s consumer price index (CPI) grew slightly more than expected in September, although inflation eased from the 10-month highs seen in the previous month.