US Dollar breathes after positive economic performance data  – London Business News | Londonlovesbusiness.com

The U.S. dollar (USD) has ended a streak of three consecutive sessions trading lower, supported by better-than-expected economic data.

Recent reports on retail sales and industrial production have revealed unexpected surprises in the U.S. economy, providing some relief for the greenback in international markets.

Retail sales in the U.S. increased by 0.1% in August 2024, surpassing expectations of a 0.2% decline. Additionally, July figures were revised upward, showing a 1.1% increase. These data suggest that consumer spending remains relatively robust, despite global economic uncertainties. The largest increases were observed in miscellaneous stores (+1.7%), online retailers (+1.4%), and health and personal care stores (+0.7%).

Meanwhile, industrial production in the U.S. rose by 0.8% in August, the largest increase in six months and significantly exceeding market expectations of a 0.2% rise. Manufacturing output, which accounts for 78% of total production, grew by 0.9%. Mining output also increased by 0.8%, while utilities production remained stable.

These positive economic indicators have eased the pressures that had built up on the dollar, especially after the likelihood of a “jumbo” 50 basis point rate cut by the Federal Reserve (Fed) increased.

However, the future of the USD now largely depends on the size of the cut the Fed decides to implement at its next meeting (Wednesday). In addition to the immediate rate movement, the Fed’s economic projections and expectations for further cuts in 2025 will be key in determining the dollar’s trajectory. If the Fed signals a more aggressive stance on monetary easing, we could expect possible further weakness in the USD. On the other hand, if it adopts a more cautious approach to normalizing policy, the dollar could find some additional support.

In summary, the U.S. dollar has found some relief thanks to stronger-than-expected economic data. However, its future direction will be closely tied to the Fed’s monetary policy decisions and the medium- and long-term economic outlook. Investors and analysts will be paying close attention to signals from the Fed, as these will significantly influence the greenback’s performance in the coming months.