Neither hard data nor a rather hawkish Powell are helping the US Dollar – Commerzbank

The US Dollar (USD) had another bad day on Wednesday, suffering several losses – EUR/USD even briefly traded above 1.14. However, this was not really due to the data, which was mixed at best. US retail sales were quite strong, although some consumers may have brought forward their larger purchases to avoid the reciprocal tariffs. Although industrial production fell a little more than expected, the previous month's figure was revised up by the same amount. Moreover, the decline was probably due to the mild weather rather than a real slowdown in the economy, Commerzbank's FX analyst Michael Pfister notes.

Fed to deliver further rate cuts sooner rather than later

"Yesterday's figures thus continued the pattern seen in recent weeks: while 'soft' data such as sentiment indicators have fallen sharply since Trump's inauguration, 'hard' data such as retail sales have remained fairly solid. Of course, this does not mean that the soft data will not eventually be reflected in the hard numbers. It just seems to be taking a bit longer."

"Fed Chairman Jerome Powell does not seem particularly concerned about the US real economy at the moment either. In his comments yesterday he sounded rather hawkish, as he has often done recently, focusing mainly on the inflationary risks posed by US tariffs. He emphasised that the tariffs were well above the level that the Fed had priced in in its most pessimistic scenario."

"However, the market still seems to doubt that the Fed can really focus solely on inflation and continues to assume that the Fed will have to deliver further rate cuts sooner rather than later to support the real economy. As a result, even a more hawkish Powell was unable to help the US dollar yesterday."