Dollar stays ahead of 16 month high on retail sales data

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Dollar stays ahead of 16 month high on retail sales data

After bringing forward last week bets for a Federal Reserve interest rate hike on the back of red-hot inflation, the dollar hovered below an almost 16 month high against major peers on Monday.

The dollar index, which measures the currency against six peers, was little changed on Friday at 95.120, when it posted its biggest weekly gain since mid-August, and touched 95.266 for the first time since July 2020.

The retail sales data released on Friday will be the main event on the U.S. economic calendar, especially after consumer confidence plunged to a decade low in early November as high inflation wreaked havoc on sentiment.

In a client note, Ray Attrill, head of FX strategy at National Australia BankAustralia Bank in Sydney, wrote that it was important to watch what still cashed-up U.S. consumers do rather than what they say, considering readings of sentiment were at odds with actual spending during the summer.

The Fed's belief that price pressure will be transitory is questioned by the fact that the dollar has been on a downward spiral since Wednesday, when consumer prices in the U.S. went up at the fastest annual pace since 1990.

The European Central Bank seems unlikely to change its dovish policy settings in the near term because of the slowing of the economy, which has helped the heavily euro-weighted dollar index, but gains in the heavily euro-weighted dollar index have also been helped by a droop in the single currency.

The euro was a little changed at $1.14455, staying within sight of Friday's 16 month low of $1.1433.

On Monday, ECB President Christine Lagarde will speak to the Committee on Economic and Monetary Affairs of the European Parliament.

The dollar was up a bit to 113.965 yen, consolidating around 114 since Wednesday.

The pound rose 0.08% to $1.3421, continuing a recovery from Friday's low of $1.3354.

The Australian dollar was stable at $0.7331. It rose 0.54% on Friday as it rebounded from a more than one-month low of $0.7277 reached the same day.

The activity data will be released on Monday, and investors will be watching for comments coming out of a virtual summit between China's leader Xi Jinping and U.S. President Joe Biden.