US dollar strengthens ahead of Fed rate cut move

By Chibuike Oguh

NEW YORK (Reuters) -The U.S. dollar strengthened against most major currencies on Tuesday following better-than-expected retail sales data that seemed to support a less aggressive stance by the Federal Reserve when it delivers a much expected interest rate cut.

Commerce Department data showed on Tuesday that U.S. retail sales unexpectedly rose 0.1% in August, suggesting that the economy remained on solid footing through much of the third quarter.

The Fed’s Federal Open Market Committee will give its interest rate decision at the conclusion of its meeting on Wednesday after which Chair Jerome Powell will hold a press conference.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.22% at 100.93.

Against the yen, the dollar rose 0.87% to 141.775 after weakening slightly following the retail sales data.

The euro hovered around $1.111550, not far from the year’s high of $1.1201.

“We obviously are waiting for the FOMC. That’s probably the overarching theme and we’ve had some moves with economic data that have come out today,” said Axel Merk, president and chief investment officer at Merk Investments in Pal Alto, California.

Fed funds futures have rallied to push the chance of a 50 basis point rate cut to 61%, against 30% a week ago. The odds have narrowed sharply after media reports revived the prospect of a more aggressive easing.

Other economic data on Wednesday appeared to provide support for the Fed to be less aggressive in cutting rates. U.S. business inventories, a key component of gross domestic product, posted a better-than-expected gain of 0.3% in July while factory output rebounded in August.

“Overall, the market is pricing in numerous rate cuts over the next several months and there are those voices that suggest that maybe the market has gotten ahead of itself,” Merk added.

The Bank of Japan is expected to keep policy steady on Friday but signal that further interest rate hikes are coming, perhaps turning the next meeting in October into a live one.

The Bank of England is also expected to retain interest rates at 5% when it meets on Thursday, although markets have priced in a nearly 36% chance of another cut.

Sterling – the best performing G10 currency this year with a 3.43% rise on the dollar – has led the charge against the dollar thanks to signs of resilience in Britain’s economy and stickiness in inflation. It was last down 0.39% at $1.31635.

Chinese markets are closed for the Mid-Autumn Festival break until Wednesday, though the yuan was up 0.15% at 7.1082 in offshore trade.

The Canadian dollar was up 0.07% at $1.35970. The Australian and New Zealand dollars bought $0.67520 and $0.61840 respectively.

Currency bid prices at 17 September​

04:19 p.m. GMT

Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid

Dollar index 100.94 100.7 0.25% -0.42% 100.95 100.56

Euro/Dollar 1.1116 1.1133 -0.15% 0.71% $1.1146 $1.1112

Dollar/Yen 141.84 140.59 0.79% 0.46% 141.84 140.36

Euro/Yen 1.1116​ 156.53 0.73% 1.31% 157.87 156.06

Dollar/Swiss 0.8467 0.8449 0.22% 0.61% 0.8478 0.843

Sterling/Dollar 1.3154 1.3216 -0.44% 3.39% $1.3229 $1.3154​

Dollar/Canadian 1.3599 1.3587 0.1% 2.6% 1.3617 1.3581

Aussie/Dollar 0.675 0.6752 0.01% -0.96% $0.6769 $0.6742

Euro/Swiss 0.9412 0.9403 0.1% 1.35% 0.9422 0.9383

Euro/Sterling 0.8449 0.8423 0.31% -2.53% 0.845 0.8419

NZ Dollar/Dollar 0.6178 0.6201 -0.34% -2.2% $0.6211 0.6179

Dollar/Norway 10.5976​ 10.5865 0.11% 4.57% 10.623 10.5601

Euro/Norway 11.781 11.786 -0.04% 4.96% 11.8099 11.7553

Dollar/Sweden 10.1921 10.1687 0.23% 1.24% 10.2075 10.1504

Euro/Sweden 11.3305 11.322 0.08% 1.84% 11.3465 11.306

(Reporting by Chibuike Oguh in New York; additional reporting by Tom Westbrook and Linda Pasquini in London; Editing by Andrea Ricci, Alexandra Hudson)