- The US retail sales report on Friday revealed a 0.9% decline compared to expectations for a 0.2% drop.
- The dollar fell after Trump delayed implementing a reciprocal tariff.
- The euro strengthened amid hopes for an end to the Ukraine war.
Currency futures rose on Friday and extended the rally this week as the dollar eased due to a poor retail sales report. At the same time, the greenback was weak after Trump delayed implementing a reciprocal tariff to give time for investigations.
US sales (Source: US Commerce Department)
The US retail sales report on Friday revealed a 0.9% decline compared to expectations for a 0.2% drop. The massive drop in sales is a sign that consumer spending has fallen, putting pressure on the Fed to lower borrowing costs.
The US CPI report on Wednesday initially led to a decline in Fed rate cut bets, boosting the dollar. Notably, inflation increased by 0.5% in January, well above estimates of a 0.3% increase. At the same time, the annual figure unexpectedly jumped from 2.9% to 3.0%. The hotter-than-expected price pressures pushed traders to price only one Fed rate cut this year. However, rate-cut bets had rebounded by Friday, with markets expecting at least two in 2025. As a result, the dollar collapsed.
Furthermore, there was pressure on the dollar since Trump delayed implementing a reciprocal tariff, giving his administration time to conduct investigations. The news eased fears of a global trade war. Moreover, the delay allows time for negotiations that could avoid trade wars. Market participants will focus on tariffs this week since the US will release few major reports.
The pound ended the week strong after data revealed a bigger-than-expected expansion in the UK economy. This bright spot in the economy eased pressure on the Bank of England to cut interest rates.
Elsewhere, the euro rallied amid reports of talks between Trump and the top leaders of Ukraine and Russia. Trump has promised to end the Ukraine war by bringing the two sides together and mediating a peace deal. According to reports, the US president talked to Russia’s Putin and Ukraine’s Zelenskyy, and both leaders are ready for peace. An end to the war will allow the Eurozone economy to recover faster.
Meanwhile, market participants look forward to Tuesday’s Reserve Bank of Australia policy meeting. Traders expect the central bank to implement its first rate cut this week. Nevertheless, the ussie remained strong due to a weak dollar.
