Dollar muted in thin trading; retail sales to drive rate cut expectations
Investing.com — The U.S. dollar traded in a muted fashion in early European trade Monday, with a U.S. holiday limiting activity as traders consider the chances of early rate cuts by the Federal Reserve.
At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 102.242, at the start of the Martin Luther King Jr. Day holiday.
U.S. producer prices unexpectedly fell in December, according to data released Friday, prompting traders to increase their bets that the Federal Reserve will start cutting interest rates early this year.
Market pricing now points to a 78% chance that the U.S. central bank will begin easing rates in March, as compared to a 68% chance a week ago, according to the CME FedWatch tool.
The U.S. data calendar is pretty quiet this week, with the main focus being Wednesday’s retail sales. This will be closely watched for indications that consumer spending — a major driver of economic growth — is remaining resilient in the face of elevated interest rates.
Retail sales are expected to have risen 0.4% in December, after a 0.3% increase in November.
“We suspect that the data may prove insufficient to trigger a USD rebound for now; the consensus view of a dollar decline later this year seems to be making investors keen to sell dollar rallies,” said analysts at ING, in a note.
Investors will also have the chance to hear from several Fed officials including Fed Governor Christoper Waller as well as Atlanta Fed President Raphael Bostic and San Francisco Fed head Mary Daly.
In Europe, EUR/USD edged higher to 1.0953, despite data showing the German economy, the largest in the eurozone, contracted by 0.3% in the final quarter of last year and
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