Market Analysis

The U.S. dollar experienced a slight rise on Friday, heading for a positive week, while the British pound slipped following weak retail sales data.

At 04:10 ET (09:10 GMT), the Dollar Index, which measures the dollar against a basket of six major currencies, increased by 0.2% to 104.065. This rebound from near four-month lows positions the dollar for its first weekly gain in three weeks.

Dollar Benefits from Safe-Haven Appeal

The dollar's rebound is supported by recent U.S. labor and manufacturing data, which have increased uncertainty about the timing of the Federal Reserve's rate cuts. Additionally, the dollar is benefiting from safe-haven demand amid deteriorating U.S.-China relations and growing uncertainty over the U.S. presidential race, with calls for President Joe Biden to withdraw from the reelection.

"Should President Biden decide to step aside, there is a scenario where the dollar could decline slightly on the expectation that Democrats would have a better chance of retaining the Senate, potentially leading to a 'Trump Constrained' situation," analysts at ING noted.

Sterling Pulls Back from Recent Highs

The British pound traded 0.2% lower at 1.2914, declining after reaching a one-year high earlier in the week. U.K. retail sales fell by 1.2% in June, compared to an expected 0.4% decline, indicating that British consumers are feeling the impact of high interest rates. Combined with recent data showing slowing wage growth and inflation at the Bank of England's 2% target, the likelihood of an August rate cut has increased to 43%, up from about 39% on Thursday.

Euro Slips Further

The euro fell 0.2% to 1.0878, continuing to slide from Wednesday's four-month peak after the European Central Bank (ECB) kept rates steady on Thursday. ECB policymaker Francois Villeroy de Galhau commented on French radio BFM Business on Friday that market expectations for future interest rates seem reasonable, with the market anticipating nearly two rate cuts by the ECB by the end of the year.

Yen Declines After CPI Data

In Asia, the yen fell 0.1% to 157.29 after Japanese inflation for June came in softer than expected, increasing uncertainty about whether the Bank of Japan will have enough scope to raise interest rates further at its upcoming meeting. Earlier this week, the pair had dropped to around 155, prompting speculation of possible Japanese government intervention in the currency markets.

Yuan Nears November 2023 Levels

The Chinese yuan rose 0.1% to 7.2674, nearing levels last seen in November 2023. The yuan has been pressured by reports that the U.S. is considering stricter trade sanctions on China's technology and chipmaking sectors, which could provoke retaliatory measures from Beijing.

Paraphrasing text from "Investing" all rights reserved by the original author.