US Dollar Rallies Amid Sharp Drop in Retail Sales, Industrial Output

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The US dollar is surging to finish the trading week as the broader financial markets were drowning in red ink amid disappointing retail sales data. The greenback has had a sluggish start to 2022, but could the conventional safe-haven asset turn things around moving forward?

According to the US Census Bureau, retail sales tumbled 1.9% in December, the largest monthly decline since February of last year. This snapped the four-month streak of shopping gains and was below the market forecast of 0%.

The sharpest declines were situated in sporting goods, apparel, electronics, furniture, and general merchandise. But there were also a notable decrease in sales at food and services locations and gasoline stations.

On an annualized basis, the retail trade climbed 16.9%.

Meanwhile, on the trade front, import prices slid 0.2% in December, while export prices plunged 1.8%.

Industrial production slipped 0.1% in December, while manufacturing output declined 0.3%. Capacity utilization dipped to 76.5%. Business inventories were unchanged at 1.3%.

The University of Michigan consumer sentiment fell to 68.8 in January, down from 70 in December. The monthly also revealed falling consumer expectations and current economic conditions, while one- and five-year inflation expectations edged up to 4.9% and 3.1%, respectively.

This comes after the latest consumer price index (CPI) increased to a 40-year high of 7% and the producer price index (PPI) soaring 9.7%.

“While high consumer price index and producer price index releases this week have only strengthened the market’s expectations of a more aggressive [Federal Reserve], there is an underlying sentiment that the Fed will continue to act cautiously,” said Jeff Klearman, portfolio manager at GraniteShare, in an interview with MarketWatch.

The US Treasury market was mostly in the green, with the benchmark 10-year yield up 0.036% to 1.745%. The one-year bill rose 0.023% to 0.478%, while the 30-year bond gained 0.029% to 2.083%.

The US Dollar Index (DXY), which measures the greenback against a basket of currencies, advanced 0.22% to 95.00, from an opening of 94.87. The index is poised for a weekly drop of 0.8%.

The USD/CAD currency pair rose 0.22% to 1.2547, from an opening of 1.2521, at 15:18 GMT on Friday. The EUR/USD dropped 0.24% to 1.1427, from an opening of 1.1456.

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