Dollar Gains Ground on Robust US Economic Data

Headlines

• The dollar index rebounded from a 3-week low, rising by 0.11% following stronger-than-expected US retail sales and manufacturing production reports.
• The US dollar faced initial pressure due to a decline in the 10-year T-note yield and market speculation about potential Federal Reserve rate cuts.
• The euro experienced a slight decline as the dollar strengthened, driven by positive US economic data and a mixed German economic survey.

The dollar index (DXY) experienced a rebound from a 3-week low, increasing by 0.11%. This shift was primarily driven by an unexpected rise in the US August retail sales report, which prompted short covering in the dollarAdditionally, the stronger-than-anticipated US August manufacturing production report further supported the dollarMeanwhile, financial stocks are also reacting to these economic signals, reflecting broader trends in the market.

Initially, the dollar faced downward pressure after the 10-year T-note yield dropped to a 15-month low, amid heightened speculation regarding a potential Federal Reserve rate cut of 50 basis points at the upcoming FOMC meetingSwap markets now reflect a 67% likelihood of this 50 basis point cut, up from 52% last FridayThe strength in stocks has also reduced demand for dollar liquidity.

The US August retail sales increased by 0.1% month-over-month, surpassing the anticipated decline of 0.2%However, the retail sales excluding autos rose by 0.1% month-over-month, which was below the expected 0.2% increaseMeanwhile, the August manufacturing production saw a robust 0.9% month-over-month rise, significantly outpacing the forecast of 0.2% and marking the largest gain in six months.

The US September NAHB housing market index increased by 2 points to 41, aligning with expectationsMarket predictions are now factoring in a 100% probability for a 25 basis point rate cut at the FOMC meeting and a 67% chance for a 50 basis point cut.

In contrast, the euro fell by 0.06% against the dollar, retreating from a 1-week highThis decline followed the German September ZEW survey, which showed the economic growth expectations index rising more than anticipated to an 11-month lowThe euro's losses were compounded by the dollar's strength resulting from the positive US economic reports.