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US dollar dominates as economic data cools rate cut expectations

The US dollar has surged to a five-month high against its major counterparts, propelled by stronger-than-anticipated US retail sales data that has reignited speculation over the Federal Reserve’s interest rate trajectory. The greenback’s rise has …

The US dollar has surged to a five-month high against its major counterparts, propelled by stronger-than-anticipated US retail sales data that has reignited speculation over the Federal Reserve’s interest rate trajectory. The greenback’s rise has exerted immense pressure on rival currencies, with the Japanese yen plunging to its weakest level since 1990 against the dollar.

Monday’s figures revealed that US retail sales climbed 0.7% in March, surpassing economists’ forecasts of a 0.3% rise. Moreover, February’s data was revised upwards, showcasing a robust 0.9% rebound – the largest gain in over a year.

This srong economic data has cast doubt on the timing of potential Fed rate cuts, particularly after March’s robust employment gains and a pickup in consumer inflation. Market pricing now indicates a 41% probability of the Fed reducing rates in July, down from around 50% before the data release. The likelihood of the first cut occurring in September has risen to nearly 46%.

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The US dollar index, a measure of the currency’s strength against a basket of peers, touched 106.39 on Tuesday, its highest level since November 2.

In the face of the dollar’s relentless surge, the yen breached 154, hitting a 34-year low. Anticipation has grown over potential yen-buying intervention by Japanese authorities. Hedge funds hold their largest bets against the yen in 17 years, leaving scope for a substantial rebound.

Japanese Finance Minister Shunichi Suzuki acknowledged on Tuesday that authorities are closely monitoring currency movements and will take a “thorough response as needed”.

Elsewhere, the euro traded at $1.0610, its weakest since November 2, as it continued to slump following the European Central Bank’s recent decision to leave the door open for a potential rate cut in June. Meanwhile, the British pound hovered around $1.2429, and the Australian dollar dipped to $0.64085, its lowest since November 14. The New Zealand dollar similarly fell to a five-month trough of $0.58735.


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