18 Sept 2023

USD strengthens following strong U.S. data and ECB rate hike

Strong US economic data and ECB rate hike boosted the USD. US retail sales and jobless claims exceeded expectations. ECB signalled the end of rate hikes amid slowing economic growth. INR struggled despite positive Chinese data; India's CPI inflation cooled.

author dp
Team INRBonds
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  • The USD traded higher following strong U.S. economic data and a rate hike by the European Central Bank (ECB).
  • US retail sales rose by 0.6% month-on-month in August, down slightly from 0.7% in the previous month but well ahead of expectations of 0.2%. Meanwhile, producer prices (PPI), which measure inflation at the factory gate, jumped 0.7%, the largest increase since June 2022.
  • US jobless claims also came in ahead of expectations at 220,000, up from 216,000 in the previous week, a 7-month low but below the expectation of 225,000.
  • On Thursday, the ECB raised rates to a record high of 4%. However, it signalled that this might be the end of its rate-hiking cycle as economic growth slows down.
  • The ECB statement noted that the key interest rates have reached levels which, if sustained for a sufficiently long duration, will contribute significantly to inflation returning to target levels.
  • INR is struggling against the USD despite the upbeat market mood following stronger-than-expected data from China. Data from Asia's largest economy revealed that retail sales rose at the fastest pace since April, and industrial production was also stronger than expected.
  • India's CPI inflation was at 6.83%, down from 7.44% in July, which marked a 15-month high, against the expectation for the inflation to cool to 7%.

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