Dollar Jumps as Retail Sales Confirm Strong US Economy

By Karen Brettell

NEW YORK (Reuters) – The dollar jumped to an 11-week high on Thursday after data showed that U.S. retail sales increased slightly more than expected in September, boosting confidence that the U.S. economy remains strong.

It followed a relatively muted currency reaction to the European Central Bank’s decision to cut rates by 25 basis points, as expected.

U.S. retail sales rose 0.4% last month after an unrevised 0.1% gain in August. Economists polled by Reuters had forecast retail sales would rise 0.3%.

“At the margin, it confirms the U.S. economy remains relatively resilient still,” said Brad Bechtel, global head of FX at Jefferies in New York.

The dollar has gained as traders price in a less dovish Federal Reserve at the same time as traders are “adjusting the other way for places like the ECB and the Bank of England,” Bechtel said.

The dollar index was last up 0.16% at 103.70, having risen as high as 103.87, its highest since August 2.

The euro was down 0.25% at $1.0834, having earlier reached $1.0811, the lowest since August 2. The yen weakened 0.07% against the greenback to 149.76 per dollar and earlier traded at 150.08, the weakest since August 1.

A much stronger than expected jobs report for September raised optimism that the U.S. economy remains in good shape.

Fed officials including Fed Chair Jerome Powell have pushed back against the prospect of additional 50 basis point rate cuts since the U.S. central bank in September surprised some market participants with the larger than usual rate reduction.

Traders are now pricing in 44 basis points of additional cuts by year-end, or a less than 100% chance of a 25 basis point cut at both of the Fed’s next two meetings. They had previously seen a further 50 basis point cut as likely at one of these meetings.

Betting site Polymarket, meanwhile, shows improving odds of a victory by Donald Trump at November’s U.S. presidential election.

A Trump administration is expected to introduce new tax cuts, loosen business regulations and enact new tariffs, which analysts say could increase growth and inflation.

Bechtel notes that election-related hedging has helped recent dollar strength, with much of the activity being made against the Mexican peso and Chinese yuan “which are going to be the two main targets for any sort of tariff-related friction or trade-related friction.”

The euro meanwhile has dipped as traders price for more dovish ECB policy as the region faces a weak economic outlook, while Europe could also face tariffs under a Trump presidency.

“Faster cuts and slower growth should keep pressure on European assets. The euro in particular feels vulnerable and has been one of our preferred shorts into the U.S. election,” said Matthew Landon, global market strategist at J.P. Morgan Private Bank in London.

The ECB said on Thursday that inflation in the euro zone was increasingly under control while the outlook for the wider economy was worsening.

The Australian dollar rose after Australian employment data beat forecasts for a sixth straight month in September.

The Aussie was last up 0.36% versus the greenback at $0.669.

In cryptocurrencies, bitcoin fell 0.94% to $66,977.

(Reporting By Karen Brettell; Additional reporting by Medha Singh; Editing by Christina Fincher)