The US dollar's gains continued against the rest of the other major currencies. This was after US retail sales surprised strongly on the upside of expectations for January, with the resulting dollar gains. It increased the gains reaped by the USD/JPY currency pair, reaching the 134.35 resistance level, the highest for the currency pair. Five weeks ago, and it settled around 133.85 at the time of writing.
Overall, the US dollar was bought against most currencies after it was reported that US retail sales rose 3% on a monthly basis in January, far outpacing the consensus among economists, who had been looking for a 1.9% increase. This brought total sales to $697 billion nationwide and an increase of 6.4% when comparing the three months through the end of January to the same period one year earlier, while core retail sales growth was similarly strong.
The 2.3% increase in core sales excludes spending on cars and suggests strong demand for smaller value items including food and drink, which were up 25.2% from January 2022 sales. Commenting on the figures, Katherine Judge, an economist at CIBC Capital Markets, says, this data confirms that the quarter got off to a stronger start than previously thought and also reinforces the need for higher interest rates for a longer period, as this leaves sales volumes in the control group 6% above the pre-pandemic trend line.”
Wednesday's estimate by the Census Bureau of US retail sales comes as higher inflation rates in January challenge the popular market view that the end of the US interest rate cycle for the Federal Reserve is in the works. Overall, higher prices for clothing, transportation, and housing services helped prevent inflation from falling as much as expected when the Bureau of Labor Statistics released data for January on Tuesday, with weak energy prices unable to offset "core" or "core" domestic inflation pressure.
The inflation data has already put a question mark over whether the recently announced inflation cut can be expected to continue, but US retail sales are unlikely to encourage the Fed to rest easier. Accordingly, Nicholas Van Ness, an economist at Credit Agricole CIB, says: “We still expect two additional increases of 25 basis points in March and May, bringing the upper limit to 5.25%, before rates remain suspended until the end of 2023.” “However, the Fed will remain data dependent, and if upcoming inflation data remains on the more steadfast side, that would open the door for the Fed to continue rising after the May meeting.”
US central bank policy
The upcoming departure of FOMC Vice Chair Lael Brainard is a more optimistic development in the Fed's interest rate outlook that could have supportive effects on the US dollar in the coming weeks. OMC Vice Chairman and Fed members Lael Brainard is set to leave the bank on or around February 20 after being named director of the National Economic Council by the White House on Tuesday.
For his part, US Central Bank Chairman Jerome Powell said, "Lyl brought tremendous talent and great results to everything she did at the Federal Reserve." “My teammates and I will really miss her.”
There have been no "doves" on the FOMC for some time now but analysts and economists have generally viewed Lyle Brainard as an influential voice of moderation on the rate-setting committee in recent months. Her departure will leave a vacuum that will automatically tilt the collective FOMC's policy stance into a hard line.
Forecasts of the US dollar against the yen today:
- The general trend of the USD/JPY currency pair is still upward.
- The continuous buying pressure of the US dollar guarantees the bulls the opportunity to have more control over the trend for a longer period.
- The closest resistance levels for the currency pair are currently 134.50, 135.30, and 136.20, respectively.
- It is enough to push the technical indicators towards strong overbought levels.
We have often recommended buying the dollar/yen pair from every downside level since it was below the support level of 129.00 when it was raised about who will take over the leadership of the Central Bank of Japan. The dollar will be affected today by the release of the Producer Price Index readings, the number of weekly jobless claims, the reading of the Philadelphia Industrial Index and the US housing numbers.
Ready to trade our daily Forex analysis? We’ve made a list of the best Forex brokers worth trading with.
