By Karen Brettell and Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The U.S. dollar surged to a fresh 11-week high on Thursday after data showed U.S. retail sales rose in September, reinforcing expectations that the Federal Reserve will pursue modest interest rate cuts over the next year and a half as the world’s largest economy remained resilient.
Against the Japanese currency, the dollar touched 150 yen, for the first time since Aug. 1. It was last up 0.4% at 150.24 yen.
The dollar index, a measure of the greenback’s value against six major currencies, was last up 0.3% at 103.81, having risen as high as 103.87, its highest since Aug. 2.
“What’s going on today is a continuation of what has been going on essentially for the whole month of October,” said Eugene Epstein, head of structured products, North America at Moneycorp in New York.
“Everybody is seeing the data coming in stronger than expected, so the dollar … is going higher. The dollar was actually weak going into the 50 basis-point cut by the Fed in September. Now that has been unwinding.”
Thursday’s data showed 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%.
A separate report from the Labor Department showed initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 241,000 last week, though hurricanes and a month-long strike at Boeing are making it harder to get a clear read of the labor market.
At the same time, the euro fell after the European Central Bank cut interest rates on Thursday for the third time this year. It said inflation in the euro zone was increasingly under control while the outlook for the region’s economy has been worsening.
MORE ECB CUTS?
ECB President Christine Lagarde, in her press briefing, did not provide clues as to the bank’s future moves, but four sources close to the matter told Reuters a fourth cut in December is likely unless economic or inflation data turns around in the coming weeks.
The euro dropped to an 11-week trough against the dollar of $1.0811, and last changed hands at $1.0826, down 0.3%. Europe’s single currency has declined for four straight sessions and has fallen 2.8% against the dollar for the month of October, on track for its largest monthly drop since May 2023.
In the United States, U.S. rate futures have priced in 92% chance that the Fed will cut rates by 25 bps, and an 8% probability that it will pause, meaning it will keep the fed funds rate at the 4.75%-5% target range, according to LSEG estimates. They had previously seen a further 50 basis point cut as likely at one of these meetings.
The futures market also expect about 44 bps cut for 2024, and an additional 102 bps reductions next year.
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.
Currency investors are also focused on the upcoming U.S. presidential election.
Betting site Polymarket, meanwhile, shows improving odds of a victory by Donald Trump at November’s U.S. presidential election.
“Trump’s odds of winning has increased and therefore the so-called ‘Trump trade’, which means buying the dollar, is back,” said Moneycorp’s Epstein.
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, a dollar-positive scenario.
Brad Bechtel, global head of FX at Jefferies in New York said 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.”
In other currencies, the Australian dollar rose after Australian employment data beat forecasts for a sixth straight month in September. The Aussie was last up 0.4% versus the greenback at US$0.6695.
In cryptocurrencies, bitcoin fell 1.1% to $66,849.Â
Currency       Â
bid
prices
at 17
October​
07:47
p.m. GMT
Descript RIC Last U.S. Pct YTD High Low
ion Close Chang Pct Bid Bid
Previous e
Session
Dollar 103.79 103.54 0.25% 2.39% 103.87 103
index .44
Euro/Dol 1.0827 1.0863 -0.32 -1.9% $1.087 $1.
lar % 4 081
1
Dollar/Y 150.23 149.76 0.37% 6.58% 150.32 149
en .31
Euro/Yen 1.0827​ 162.52 0.09% 4.52% 162.76 161
.86
Dollar/S 0.8664 0.8655 0.13% 2.97% 0.867 0.8
wiss 631
Sterling 1.301 1.2991 0.17% 2.26% $1.302 $1.
/Dollar 3 297
5​
Dollar/C 1.3798 1.3752 0.35% 4.1% 1.3801 1.3
anadian 748
Aussie/D 0.6694 0.6666 0.44% -1.8% $0.671 $0.
ollar 666
Euro/Swi 0.9381 0.94 -0.2% 1.02% 0.941 0.9
ss 354
Euro/Ste 0.8319 0.8361 -0.5% -4% 0.8369 0.8
rling 318
NZ 0.6059 0.6057 0.06% -4.09% $0.607 0.6
Dollar/D 6 045
ollar
Dollar/N 10.9252 10.9141 0.1% 7.8% 10.966 10.
orway ​ 8 903
1
Euro/Nor 11.8278 11.8553 -0.23 5.38% 11.901 11.
way % 82
Dollar/S 10.5399 10.5019 0.36% 4.7% 10.547 10.
weden 4 496
2
Euro/Swe 11.413 11.4076 0.05% 2.59% 11.439 11.
den 379
(This story has been refiled to remove the extraneous euro rate in paragraph 10)
(Reporting By Karen Brettell and Gertrude Chavez-Dreyfuss; Additional reporting by Medha Singh; Editing by Christina Fincher and Marguerita Choy)
