After Poor US Retail Sales, the Dollar Stays Weak As Futures Pair Gains

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After some disappointing retail sales numbers, the dollar is under selling pressure. US futures have also given up some of their earlier gains and seem vulnerable. The yen is the second weakest currency after the dollar, although commodity currencies, along with the Euro, are the strongest. The question now is whether the Dollar’s fall can gain enough traction to make new lows before the week’s end.

Despite strong factory-gate inflation data and a positive employment report of the previous session, the US dollar is falling. With 473k initial claims filed last week, unemployment claims reached a new pandemic low. Meanwhile, producer price inflation increased by 0.6 percent in March, which was double the planned pace. PPI increased by 6.2 percent on an annual basis, the largest increase since the data began being monitored in 2010.

Inflation concerns seem to have subsided as labor market data has improved. Concerns about labor shortages as a result of the weak non-farm payroll have exacerbated inflation concerns this week, putting upward pressure on salaries. Signs that the labor market recovery is on track are boosting market sentiment and calming inflation fears. The greenback is falling as a result of this, as well as the Fed’s dovish hymn sheet being sung loudly.

In April, Retail Sales in the United States Stays Flat

Retail sales remained unchanged in April, according to data published on Friday. While the upward adjustment to the March figures softens the blow somewhat, the result fell short of the consensus estimate of a moderate gain.

In April, US retail sales were flat at USD 619.9 billion, well below the 0.5 percent increase expected by economists. Ex-auto sales fell -0.8 percent, mom, falling short of expectations of a 0.9 percent mom increase. Sales of non-gasoline products increased by 0.1 percent. Sales of non-auto, non-gasoline products fell -0.8 percent, mom.

The Federal Reserve’s “transitory” inflation warning, according to analysts, has credibility. They believe the chance of a more sudden rise in yields is greater, but the likelihood remains low for the time being. Their outlook for the dollar remains bearish but less so than previously.

Meanwhile, with the US dollar as the global reserve currency, the US Treasury market remains a crucial market for international investors, and with hedging costs still so low thanks to the well-anchored short-end of the US curve, the yield pick-up net of hedge is becoming increasingly appealing.