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US retail data, the Fed rate cut bets on the center

Athit Perawongmetha | Reuters

The dollar held close to a two-week high against its major rivals on Monday, in anticipation of a crucial meeting of the US Federal Reserve that is expected to lay the groundwork for a reduction in oil prices. interest in supporting the world's largest economy.

While strong US retail sales on Friday helped reduce the already weak chance of a looser this week and push up the dollar, investors are betting that Fed Chairman Jerome Powell would leave the door open to futures. rate cuts, given the growing economic tensions.

The dollar index versus a basket of six major currencies was slightly lower at 97.515, after climbing to 97.583 on Friday, its highest level since June 3.

"As long as Powell does not rule out short-term rate cuts, the dollar will remain heavy up after the Fed meeting," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

Forecasts of lower interest rates at the Fed meeting on June 18 and 19 rose from 28.3% Thursday to 21.7%, following the good retail data, according to the FedWatch tool. CME group. However, the bets on monetary easing at the July meeting remain high at 85%.

The escalation of the trade war between the United States and China has spilled over into global supply chains, hitting hard on business investment, industrial production, and global growth.

However, the perverse effects of the Fed on the dollar are dampened by policy easing in other countries.

Fears that a long Sino-US confrontation could tip the global economy into recession have resulted in rate cuts in many Asian countries, including India, the Philippines, Malaysia, the New World. Zealand and Australia.

The European Central Bank has also recently raised the prospect of even stronger stimulus measures, while the Bank of Japan should strengthen its commitment to pursue a massive stimulus package for some time.

"In addition to the upbeat US data, the dollar is supported by weakness in other currencies, including the euro and the poles," said Junichi Ishikawa, chief foreign exchange strategist at IG Securities in Tokyo. .

"The Fed could reduce rates sooner or later, but its counterparts in the antipodean and the ECB could too, and such views give the dollar advantage."

Later Monday, the office of the US Trade Representative will begin seven days of testimony of US companies on the project of President Donald Trump to sell $ 300 billion of Chinese products with customs duties.

Some traders are watching these hearings as complaints from US companies, who bear the cost of tariffs on the goods they import, could prompt Trump to delay further rate increases.

The euro was slightly higher Monday at $ 1.1215 after losing about 0.6% on Friday, while it had fallen to a low of $ 1.203 in eight days.

The Australian dollar rose slightly to US $ 0.6878, but remained close to the five-month low of $ 0.6862 set on Friday, as the currency retreated by nearly 0.7%.

The New Zealand dollar, which had fallen more than 1% in the previous session, traded at $ 0.6505.

The dollar was 108.62 yen after a slight rise of 0.15% Friday.

CNBC contributed to this report.

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