The United States of America dollar, on Wednesday, August 16, held near a three-week high against a trade-weighted basket of its rivals as strong U.S. retail sales data boosted risk appetite.
“The North Korea missile fears seems to be abating for now and if the recent bunch of strong U.S. data translates into higher inflation, then markets will start pricing more interest rate increases from the Fed in the coming months,” said Ulrich Leuchtmann, an FX strategist at Commerzbank in Frankfurt.
The dollar index .DXY edged higher to 94.02 and was consolidating most of its overnight gains when it hit its highest level since July 26 at 94.14 in the previous session.
U.S. retail sales jumped 0.6 percent in July, handily beating economists’ estimate of a 0.4 percent reading.
But despite the strong data, interest rate expectations remain broadly unchanged with markets expecting the Federal Reserve to raise rates only once over the next 12 months, according to the CME’s Fedwatch tool.
Easing fears of armed conflict between the United States and North Korea also prompted investors to buy back riskier assets they had sold last week as fiery rhetoric between the two countries escalated.
Morgan Stanley strategists were wary about reading too much into the dollar’s overnight bounce, pointing out that economic data from other countries such as Sweden and Japan have been robust, indicating further dollar gains may be slow, Reuters reports.
