The U.S. dollar rose on Tuesday after data showed retail sales in April were lower than expected but suggested a firm underlying trend, with investors remaining skittish about the debt ceiling issue.
U.S. President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy will meet later on Tuesday to try to iron out a deal to raise the debt ceiling, with a little more than two weeks to go before the U.S. government could run short of money to pay its bills.
McCarthy on Tuesday told reporters that his party, which controls the chamber by a 222-213 margin, would only agree to a deal that cuts spending.
“There is maybe some potential news on the debt ceiling today. Chances are that this is going to be pushed closer to the deadline, which is early next month,” said Vassili Serebriakov, FX strategist at UBS.
“So the market should remain in a range. I don’t really see any directional impulse here.”
The dollar index was up 0.2% on the day at 102.59 . Against the yen, the greenback rose 0.4% to 136.62 yen .
The euro slipped 0.1% versus the dollar to $1.0865 , while sterling fell 0.3% to $1.2490 .
The greenback earlier rose after U.S. retail sales rose less than expected in April, but details showed that the underlying trend remained solid. This suggested that consumer spending likely remained strong early in the second quarter.
Retail sales rose 0.4% last month. Data for March was revised slightly lower to show sales dropping 0.7% instead of 0.6% as previously reported. Economists polled by Reuters had forecast sales rebounding 0.8%.
“It was a rebound after two soft months, which suggests that consumer spending is still holding up,” said Serebriakov.
In line with the generally upbeat economic picture, industrial production jumped 1% in April, easily topping expectations for a flat reading and up slightly from the revised 0.8% increase in March.
The reports suggested that while the market widely expects the Federal Reserve to pause increasing rates at the next meeting, a hike in borrowing costs was not off the table.
The rate futures market has increased the odds of a 25 basis-point rate hike next month to about 22% on Tuesday. It was at around 16% late on Monday.
Richmond Federal Reserve President Thomas Barkin on Tuesday doubled down on the higher-for-longer mantra. He said he likes the “optionality” implied in the central bank’s latest policy statement, but he is “comfortable” with raising interest rates further if that is what is needed to lower inflation.
That has been the message from several Fed officials over the last week.
“While there were some mixed signals in today’s various data reports, on net most were favorable and early in the quarter we’re continuing to track some upside risk to our 1.0% 1Q GDP growth projection,” wrote Michael Feroli, chief U.S. economist at J.P. Morgan.
“Even so, given all the dark clouds on the horizon, we continue to see the Fed on hold at the next meeting in mid-June.”
