Dollar set for losing week; sterling falls further after retail sales

Investing.com - The US dollar edged higher Friday, but was on course for a weekly loss after core inflation eased, while sterling retreated following the release of weak retail sales data.

At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 108.930, but was set for a drop of about 0.5% in the week, which would snap a six-week winning streak.

Dollar set for weekly loss 

The dollar has retreated this week after cooler than expected inflation data raised the possibility of easier monetary policy this year, even after policymakers at the Federal Reserve indicated they would be cautious in its approach to cutting rates this year. 

Fed Governor Christopher Waller said on Thursday three or four rate cuts are still possible if economic data weakens further.

“The perception at the end of a busy week in macro news is that the optimism around a month-on-month slowdown in core inflation is cautious at best,” analysts at ING said, in a note.

“The inherently forward-looking markets are factoring in Trump’s inflationary policies from a starting point that is already significantly above the target. So, despite stretched positioning and short-term overvaluation, the dollar continues to dodge true catalysts for a correction.”

Sterling falls after retail sales dip

In Europe, GBP/USD traded 0.4% lower to 1.2197, after British retail sales fell unexpectedly in December, dropping by 0.3% in month-on-month terms in December after a downwardly revised 0.1% expansion in November, raising the risk of an economic contraction in the fourth quarter.

Data released earlier in the week showed that the British economy barely returned to growth in November.

The Bank of England is expected to cut interest rates in February, with two rate cuts in 2025 largely priced into the market.

EUR/USD fell slightly to 1.0300, ahead of the release of the final eurozone consumer price index for December. 

“EUR/USD appears to have found a short-term anchor at the 1.0300 handle. That is a level that embeds a 2.5-3% risk premium (i.e. undervaluation), which we suspect will not be materially trimmed until more clarity on Trump’s protectionism policy emerges,” ING added.

Yen nears one-month high

In Asia, USD/JPY climbed 0.3% to 155.79, near its strongest level in nearly one month.

The yen firmed sharply this week as several Bank of Japan officials suggested that an interest rate hike was possible when the central bank meets next week.

USD/CNY traded 0.1% lower to 7.3289, after hitting an over one-year high this week.

China’s GDP grew 5.4% in the fourth quarter, more than expectations of 5%, as a barrage of recent stimulus measures bore fruit.