US Dollar sees losses erased after US Retail Sales delivers big upside revisions ahead of the intensive year-end retail season

The Greenback trades on the back foot, giving back Thursday’s gains.
Fed Chairman Jerome Powell surprised markets by casting doubts over December’s interest-rate cut.
The US Dollar index falls back to the mid-106 level and could face further selling pressure.

The US Dollar (USD) sees earlier declines soften a bit on Friday with US Retail Sales seeing strong upward revisions ahead of the important US shopping season with Thanksgiving, Black Friday and Christmas as main events for consumers and the Retail sector.

The USD retreats even as traders are quickly paring back bets of another interest-rate cut by the US Federal Reserve (Fed) in December. The last blow came from Fed Chairman Jerome Powell, who in a speech on Thursday cast a shadow over the December rate cut odds by pointing out that the economy is doing great and the job market is looking healthy. Equities across the globe are not digesting this message too well, as this kills off the chances for a year-end Goldilocks scenario.

Daily digest market movers: Retail Sales is a reboot for this Friday

Fed Chairman Jerome Powell’s speech on Thursday came as a surprise to markets. While the Fed is said to remain data-dependent, several traders and strategists are pointing out that the Fed might already be pricing in a Trump trade effect.
Bloomberg reports that German chancellor Olaf Schultz and Russian President Vladimir Putin will hold a phone call later this Friday.
Boston Fed President Susan Collins told the Wall Street Journal in an interview that a December rate cut is not a done deal, while she does not see signs of price pressures.
At 13:30 GMT, US Retail Sales for October were due. Headline Sales grew by 0.4%, beating the 0.3% forecast. The positive surprise came with the revision to 0.8%, from 0.4% previously.
Also at 13:30 GMT, the New York Empire State Manufacturing for November came in as a cherry on the cake with the number breaking out of contraction, surging to 31.2. That is a big beat of expectations agains tthe -0.7 expectation and the previous -11.9.
Industrial Production for October is expected to come in at 14:15 GMT. Another monthly contraction of 0.3% is expected.
Federal Reserve Bank of Boston President Susan Collins delivers welcome remarks at the 68th Economic Conference organized by the Boston Fed at 14:00 GMT.
Federal Reserve Bank of New York President John Williams delivers opening remarks at the New York Fed Alumni event in New York near 18:15 GMT.
Equities in Asia have closed off this Friday quite mixed. Japanese equities closed off on Friday on the front foot, while Chinese indices were on the back foot at the closing bell. US futures are sinking, with the Nasdaq flirting with a 1% loss early on the day.
The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 58.7%. A 41.3% chance is for rates to remain unchanged. While the rate-cut scenario is the most probable, traders have significantly pared back some of the rate-cut bets compared with a week ago.
The US 10-year benchmark rate trades at 4.45%, just off the high printed on Thursday at 4.48%.

US Dollar Index Technical Analysis: Keep calm and look at fundamentals

The US Dollar Index (DXY) is undergoing a small fade this Friday, though warnings must be issued as comments from Powell are US Dollar positive. The Fed signals it will probably pause its cutting cycle, while for example the European Central Bank (ECB) will likely continue with still a string of rate cuts. This would widen the interest rate gap between the two nations, and will support the US Dollar as a high-yielding currency against other currencies.

From now on, the 107.00 round level remains in play going forward after the sharp rejection from Thursday. A fresh yearly high has already been printed at 107.07. A two-year high could be reached if 107.35 gets taken out.

On the downside, a fresh set of support is coming live. The first support is 105.93, the closing level on Tuesday. A touch lower, the pivotal 105.53 (April 11 high) should avoid any downturns towards 104.00.

US Dollar Index: Daily Chart

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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