USD Hit by Bad Retail Sales but Recovers Quick
US retail sales numbers today were not good. In April, headline consumer retail spending was down some 16.4% M/M, a much larger drop than the expected 12%. Core retail sales told an even worse story, dropping 17.2% in the month of April. Needless to say, both of these drops were the largest monthly drops on record.
USD took an immediate hit, with DXY slipping to lows of the day around the 100.10 mark. However, in recent trade, DXY has seen a notable pick up, moving back around 100.40. Generally this week, USD has been firm. Here’s why…
1) Rising US/China tensions - Tensions have been on the rise all week, with the US upping the ante on the Chinese via various channels including more critical rhetoric over its handling of Covid-19, the threat of tariffs and sanctions, upping the pressure on Huawei and increasing pressure on China for its treatment of the Uighur Muslims. In the past US/China tensions and trade wars have been a USD positive - this time seems no different.
2) Powell says no to NIRP - Powell on Wednesday ruled out the use of Negative Interest Rate Policy (NIRP) in the US any time soon. This supported USD at the time and has continued to do so throughout the week.
3) US President Trump is now a fan of a stronger USD - “It’s a good time for a strong USD”, said the US President on Thursday. As noted in a previous blog, this is quite a change of tune from the President, who had previously complained about the strong USD, fueling speculation that the government would intervene to try and weaken it. Now that threat is off the table, this is one downside risk to USD gone.
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