Dollar backs off three-month high ahead of retail sales data

Dollar fell in European trade on Thursday against a basket of major rivals, extending losses for the second day away from three-month high on profit-taking, while US treasury yields slow down.

The decline comes ahead of important US retail sales, unemployment claims, and industrial production data, which could provide fresh clues on the future path of US interest rates.

The Index

The dollar index fell 0.15% to 104.58, with a session-high at 104.72, after closing down 0.2% on Wednesday, the first loss in three days away from a three-month high at 104.98. 

US Yields 

US 10-year treasury yields fell 0.8% on Thursday away from recent 11-week highs at 4.332%, underpinning non-yielding assets like gold.

The developments come ahead of important US data and remarks by Fed officials later today, expected to delineate the future of US interest rates. 

US Rates

Markets are currently pricing in an 11% chance of a Fed 0.25% interest rate cut in March, with only a 44% chance of such a cut in May.

Traders now expect 3 or 4 Fed rate cuts, valued at 100 basis points in 2024, down from 150 basis points of rate cuts in previous forecasts according to the LSEG interest rate probability app. 

Chicago Fed President Austan Goolsbey recently warned from waiting too long before cutting interest rates, taking an usually bearish stance on the issue.  

US Data

Now traders await important US retail sales, unemployment claims, and industrial production later today to determine the likely path ahead for monetary policies. 

US retail sales are expected down 0.2% in January, compared to a 0.6% rise in December, while core sales, excluding automobile sales, are expected up 0.2%. 

US unemployment claims are expected up slightly to 219 thousand last week from 218 thousand.

Finally, US industrial production is expected up 0.2% in January, accelerating from a 0.1% increase in December.