Dollar strengthens after data with Trump-Xi summit under way
Market Reactions and Economic Data
By Chuck Mikolajczak
NEW YORK, May 14 (Reuters) - The dollar climbed for a fourth straight day on Thursday, as economic data continued to shift market expectations away from a potential rate cut from the Federal Reserve, while investors awaited any developments from talks between the U.S. and China.
U.S. Economic Indicators
The Commerce Department said retail sales rose 0.5% last month, matching the estimate of economists polled by Reuters, after a downwardly revised 1.6% jump in March.
Consumer Spending Trends
"It's remarkable the extent to which there was no surprise in today's print... when we look at the fundamentals here, American consumers are still spending," said said Karl Schamotta, chief market strategist at Corpay in Toronto.
"They are telling pollsters that they're more cautious, but at the same time, they're not walking the talk, they're spending as they have. We're not seeing enormous cannibalization effects in the sense that consumers are taking spending that previously was going to other goods and services and applying it toward gasoline."
Labor Market and Inflation Data
Separately, the Labor Department said weekly initial jobless claims rose by 12,000 to a seasonally adjusted 211,000, slightly above the 205,000 estimate, indicating the job market remains stable.
In addition, the Labor Department said import prices increased 1.9% last month, well above the 1.0% estimate, after an upwardly revised 0.9% rise in March, with the cost of fuels posting the largest increase in four years. The increase comes after consumer and producer inflation data earlier this week showed brisk rises.
Dollar Performance and Market Expectations
The dollar index, which measures the greenback against a basket of currencies, rose 0.37% to 98.83 with the euro down 0.29% at $1.1676. The greenback was on track for a fourth straight day of gains, its longest run since late March.
Markets have largely priced out any chance of a rate cut this year, with expectations for a hike in 2027 slowly increasing as the Iran war drags on, keeping oil prices elevated as the Strait of Hormuz remains largely shuttered, and recent comments from Fed officials flagging inflation concerns.
Expectations for a hike of at least 25 basis points at the Fed's December meeting have crept up to 36.9%, according to CME Fedwatch, from 22.5% a week ago.
Federal Reserve Perspectives
Kansas City Federal Reserve President Jeffrey Schmid said on Thursday that inflation is the biggest risk to a U.S. economy that has shown "remarkable resilience" in the face of numerous challenges, and the job market is stable.
Federal Reserve Governor Stephen Miran, known for repeatedly advocating for rate cuts, said he would resign his seat on or shortly before Kevin Warsh is sworn in as the Fed's next chair, a procedural move needed to create an open seat for Warsh on the seven-member board.
Commodities and Currency Movements
Oil Prices Steady Amid Iran Tensions
OIL PRICES STEADY AMID IRAN TENSIONS
U.S. crude rose 0.45% to $101.47 a barrel and Brent edged up to $105.95 per barrel, up 0.3% on the day on the day, although gains were muted after Iran's state media said about 30 vessels had crossed the Strait of Hormuz.
Crude prices and the dollar briefly dropped after the Financial Times reported Saudi Arabia had floated a Middle Eastern non-aggression pact with Iran.
Dollar Extends Decline Against Yuan
DOLLAR EXTENDS DECLINE AGAINST YUAN
China's President Xi Jinping warned U.S. President Donald Trump that mishandling the countries' disagreements over Taiwan could push China-U.S. relations to a "dangerous place," as the two leaders met for a closely watched summit.
The dollar was flat at 6.786 versus the offshore Chinese yuan.
Other Currency Movements
Against the Japanese yen, the dollar strengthened 0.22% to 158.19. Bank of Japan board member Kazuyuki Masu said earlier that the central bank should move to raise interest rates promptly if there are no clear signs of an economic slowdown.
Japanese authorities are believed to have intervened several times in the past couple of weeks to temper the dollar's strength, but with increasing expectations for a potential Fed hike, the yen has resumed softening.
Sterling weakened 0.94% to $1.3395 and was on track for its biggest daily percentage drop since September 2 and fourth straight decline as turmoil envelops the UK government.
UK Political Developments
British Prime Minister Keir Starmer was struggling to hold on to power after his main rival in the government resigned, accusing him of political drift, and others positioned themselves for potential challenges to his leadership.
(Reporting by Chuck Mikolajczak; additional reporting by Amanda Cooper in London and Rae Wee in Singapore; Editing by Alexandra Hudson, Kirsten Donovan, Philippa Fletcher and Cynthia Osterman)