And we won't have to wait long for that, with US retail sales data coming up later today. The dollar is already getting bodied against major currencies, as markets build on the softer CPI report earlier this week.
The question now though is, are we at the stage where bad news is bad news again? This was already a topic last week as mentioned here. And with Fed pricing looking like this, it's easier to lean towards a shift in the narrative. That said, I would argue that we are still at some transition point more than anything else.
This makes it a little tricky to read into the retail sales data later today.
On one hand, poor consumer activity is another reason for the Fed to consider to revise its higher for longer rates outlook. On the other, tighter financial conditions are perhaps weighing more heavily on the economy. And that might not mean just a shallow recession, especially if the Fed overstays its welcome on tighter policy.
It is a fine balance in weighing which one of these views that markets are going to follow.
For today though, I would argue that unless we see really hot numbers, broader markets will stick to the prevailing narrative so far this week. That being inflation looks to be cooling and traders are looking to price in a terminal rate in June, with only one more 25 bps rate hike to go in May.
What does that mean for the dollar?
I think any upside potential is limited, barring a surprise beat on retail sales. Given the technical predicament, the path of least resistance looks to be lower for the dollar as markets are just waiting for the next big data to authenticate their current bias.
