Anticipating retail sales data and commentary from Federal Reserve members, the U.S. dollar experienced modest growth on Tuesday.
The dollar index, which measures the greenback against six major currencies during European trading hours, holding onto the modest gains from the previous session. Last week's sharp euro selloff, following French President Emmanuel Macron's surprise election call, had contributed to the dollar's recent strength.
Federal reserve signals and economic indicators
Rate cut predictions have been postponed as U.S. inflation numbers remained tame and the Federal Reserve displayed a more aggressive tone regarding monetary policy. Philadelphia Federal Reserve President Patrick Harker expressed his support for implementing one interest rate reduction this year during a recent interview on Monday. However, he noted that his stance could change based on new information.
The retail sales figures for the United States are set to be unveiled at 12:30 GMT (8:30 a.m. ET). Predictions suggest they will reveal a 0.3% increase from May to April, following no improvement in the previous month. However, the actual data released showed that U.S. retail sales increased less than expected in May. Lower prices for gasoline and motor vehicles weighed on receipts at service stations and auto dealerships, indicating signs of exhaustion among U.S. consumers.
"It may have come later than initially expected, but the tight financial conditions engineered by the Fed finally appear to be straining household budgets this year," said Stuart Cole, chief economist at Equiti Capital. "But a softer pace of consumption may actually be welcomed by the Fed, as it makes the task of returning CPI back to target that much easier, especially given the key role domestic consumption plays in driving U.S. economic activity."
Yen Awaits BOJ Decision Amid Lower U.S. Inflation
The dollar slipped against the yen on Tuesday, as traders digested last week's mild inflation data and anticipated a BOJ policy decision later in the week. The euro remained relatively unchanged at $1.073625, having slipped as low as $1.071 earlier in the session, following last week's sharp selloff triggered by Macron's election call.
Rodrigo Catril from National Australia Bank indicated an approximately 80% probability for the Federal Reserve to reduce interest rates this year based on market predictions. However, he noted that recent U.S. economic data, including stronger-than-expected industrial production figures and lower jobless claims, could delay the timing of rate cuts.
Bill Adams, Comerica Bank's chief economist, pointed out that the weaker-than-anticipated retail sales report boosts the probability of the Fed initiating interest rate cuts in the coming months. Fed Funds futures indicated a 67% chance of at least one rate cut by the September Fed meeting, an increase from 63% reported just a day earlier.
Sterling edged lower against the dollar, trading at $1.2705 as investors awaited this week's UK inflation figures and the Bank of England interest rate decision.
Commodity markets and Bitcoin's performance
In commodity markets, oil prices dipped due to concerns about rising U.S. production and increasing supply from Libya. WTI crude was down. Meanwhile, gold continued its recent rally.
Tuesday saw the Australian dollar maintaining its previous level following the Reserve Bank of Australia's (RBA) announcement that it would leave interest rates unchanged. The RBA reiterated its stance that while the economy is growing, it remains below trend, and inflation is likely to remain low for some time.
The price of bitcoin saw a notable decrease, falling below the $66,000 threshold, marking its lowest point in over a month. This correction was driven by escalating concerns surrounding regulatory scrutiny and the environmental consequences associated with cryptocurrencies. Bitcoin fell about 3% to $64,475, another one-month low.
Despite recent market corrections, some financial experts remain confident in bitcoin's long-term potential for growth. They believe that the increasing trend of institutional investment and growing mainstream acceptance will be significant driving forces behind future increases in value.