U.S. retail sales surge, but euro drops

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U.S. retail sales surge, but euro drops

NEW YORK, Nov 16, Reuters -- The dollar went to a 16 month high on Tuesday after data showed the U.S. consumers looked past rising prices and drove retail sales higher than expected last month, while the euro slumped due to growth concerns and a surge in COVID 19 cases in Europe.

U.S retail sales rose by 1.7% in October, topping consensus expectations of a 1.4% rise, likely due to Americans starting their holiday shopping early in order to avoid shortages of some goods due to the ongoing pandemic squeezes supply chains.

The dollar index was up 0.385% at 95.898, having earlier touched 95.928, its highest since July 2020.

Since U.S. inflation data last week showed consumer prices surged to their highest since 1990, the dollar has rallied, fuelling speculation that the Federal Reserve may raise interest rates sooner than expected.

If you look at the U.S. markets, there is a lot more speculation, at least within implied market pricing, that they will be hiking on more than one occasion next year, said Mazen Issa, senior FX strategist at TD Securities. The dam broke last week and the FX complex is definitely tagging along for the ride, according to the U.S. CPI report. He said that the retail sales report only adds fuel to the fire.

The euro was down 0.43% against the dollar at $1.13175, down 0.43%. The single currency dropped to $1.1315, its lowest since July 2020, the single currency dropped to $1.1315 earlier in the session.

On Monday, European Central Bank President Christine Lagarde said that tightening monetary policy now to rein in inflation could choke off the euro zone's recovery, comments that were seen as pushing back calls and market bets for tighter policy.

Marshall Gittler, head of investment research at BDSwiss Holding Ltd, said the euro zone's decline reflects the disappointing performance of the economy relative to the United States, which has been surprising on the upside more than the euro zone has been.

He said that COVID 19 is also surging in Europe, which has caused some countries to contemplate lockdowns whereas the spread of the virus seems to have stabilized for now in the United States.

The market is getting increasingly nervous about the euro, as a result of this, said Gittler.

On Monday, Austria imposed a lock down on unvaccinated people, while Germany's parliament is due to vote on stricter measures to deal with surging cases. France, the Netherlands, and many countries in Eastern Europe are experiencing a surge in infections.

The fear that the situation could escalate and result in a tightening of restrictions in the coming months is hurting sentiment towards European currencies, according to MUFG currency analyst Lee Hardman.

The British pound was up 0.1% against the dollar at $1.3429, as shown by data showing British employers hired more people in October after the government's job protection scheme ended.

It was the first time since Nov. 1 that the price of the digital currency fell below $60,000.