US Dollar Index holds position above 107.00 ahead of Retail Sales figures

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• The US Dollar Index depreciated following Trump's decision to delay the implementation of reciprocal tariffs.

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• US Retail Sales are forecasted to contract by 0.1% MoM in January, following a previous increase of 0.4%.

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• The Greenback may gain ground as US Core PPI inflation has increased the odds of the Fed delaying rate cuts.

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The US Dollar Index (DXY), which tracks the US Dollar's (USD) performance against six major currencies, remains stable after losses in the previous session. At the time of writing, the DXY hovers around 107.00, while yields on 2-year and 10-year US Treasury bonds stand at 4.31% and 4.53%, respectively.

The US Dollar faces pressure following President Donald Trump's decision to delay the implementation of reciprocal tariffs. Additionally, declining US Treasury yields weigh on the Greenback, despite ongoing concerns about a global trade war.

Investor attention now shifts to the upcoming US Retail Sales report, the last key economic release of the week. Markets anticipate a slight monthly decline of 0.1% in January, following a 0.4% increase in the previous period.

Core PPI inflation in the United States (US) rose to 3.6% YoY in January, exceeding the expected 3.3% but slightly below the revised 3.7% (previously reported as 3.5%). This has reinforced expectations that the Federal Reserve (Fed) will delay rate cuts until the second half of the year. Additionally, persistently strong inflation could further support the outlook for the Fed to keep interest rates at 4.25%-4.50% for an extended period.

In his semi-annual address to Congress, Fed Chair Jerome Powell stated that policymakers “do not need to be in a hurry” to cut interest rates, citing a strong labor market and robust economic growth. He also warned that President Trump’s tariff policies could drive prices higher, complicating the Fed’s ability to lower rates.

A Reuters poll of economists now suggests the Fed will delay interest rate cuts until the next quarter due to rising inflation concerns. Many analysts who had previously anticipated a March rate cut have revised their forecasts, with the majority of respondents (surveyed between February 4-10) now expecting at least one rate cut by June, though opinions on the exact timing remain divided.