After robust US retail sales data, Dollar is at 16 months high

The dollar rose to a 16-month high. This is after data showed U.S. consumers looked past rising prices. And they drove retail sales higher than expected last month. The euro slumped amid growth concerns and there is a surge in COVID-19 cases in Europe. U.S. retail sales rose 1.7% in October. This had topped consensus expectations of a 1.4% rise. This is mainly to avoid further shortages of some goods, because of the pandemic squeezing supply chains.

The dollar index was up 0.385%, earlier it had touched 95.92. The dollar has rallied since U.S. inflation data showed consumer prices surged to their highest rate since 1990. This fuels the speculation that the Federal Reserve may raise interest rates sooner than expected. Mazen Issa, senior FX strategist at TD Securities said that if they look at U.S. markets, there’s a lot more speculation, at least within implied market pricing, that they will be hiking on more than one occasion next year. After last week’s U.S. CPI report, the dam just broke and the dollar and the FX complex is certainly tagging along for the ride.

The euro extended losses versus the dollar, last down 0.43%. Earlier in the session, the single currency dropped to $1.1315. European Central Bank President Christine Lagarde said that tightening monetary policy now to rein in inflation could choke off the euro zone’s recovery. The euro’s decline reflects the disappointing performance of the euro zone economy relative to the United States. Marshall Gittler, head of investment research at BDSwiss Holding Ltd said that this has been surprising on the upside more than the euro zone has been.

COVID is causing some countries to contemplate lockdowns again. In US it is stabilized. Gittler said that as a result, the market is getting increasingly nervous about the euro. Austria imposed a lockdown on unvaccinated people. Germany’s parliament is due to vote on stricter measures to deal with surging cases. France, the Netherlands and many countries in Eastern Europe are also experiencing a surge in infections. MUFG currency analyst Lee Hardman said in a client note that the fear that the situation could escalate and result in a more significant tightening of restrictions in the coming months is hurting sentiment towards European currencies. The British pound was up 0.1% against the dollar at $1.3429. This is spurred by data that showed British employers hired more people in October. The cryptocurrency bitcoin dipped back below $60,000.