DXY Falls after Weak Retail Sales Data

The dollar index fell to 96.8 on Tuesday after falling more than 1% over the previous two sessions, as softer US data strengthened expectations for Federal Reserve rate cuts. A weaker-than-expected retail sales report showed consumer spending stalled in December, reinforcing the view that growth is slowing and supporting the case for policy easing. Money markets are now pricing a higher probability of three Fed rate cuts in 2026, compared with expectations for two cuts a week ago. Investors are turning to upcoming US jobs and inflation data for further signals on the economic outlook and policy path. The dollar also faced pressure from concerns about foreign demand for US assets after reports that Chinese regulators advised financial institutions to limit holdings of US Treasuries to reduce concentration risks and shield against uncertainty around US economic policies.

The dollar index held below 97 on Tuesday after losing more than 1% over the past two sessions, weighed down by concerns that foreign demand for dollar-denominated assets could soften. The decline followed reports that Chinese regulators advised financial institutions to limit their holdings of US Treasuries to reduce concentration risks and mitigate the impact of uncertain US economic policies. Meanwhile, investors turn their attention to the delayed US jobs and inflation reports this week, which could influence the Federal Reserve’s policy outlook. White House economic adviser Kevin Hassett noted on Monday that US job gains may slow in coming months due to weaker labor force growth and higher productivity. The Fed is widely expected to keep interest rates steady in March, with two rate cuts priced in later this year. The dollar nursed losses across the board, with the yen standing out on fears of possible intervention from Japanese authorities following the election.

The dollar index fell to 97 on Monday, trimming the rebound from the previous week on strength for G10 currencies and fresh concerns that global markets may pivot away from dollar-denominated assets. Chinese regulators advised financial institutions to limit their exposure to US Treasury securities in a push against concentrations risks and the impact of uncertain economic policy from Washington. The move echoed similar rhetoric from other large economies that are showing greater unease in exaggerating their exposure to US assets, including European pension funds that trimmed Treasury holdings after the White House's hawkish rhetoric on Greenland. Traders were also cautious ahead of a key slate of US economic data due this week, including the employment report and CPI figures. In the meantime, the Japanese yen gained after Prime Minister's Takaichi's landslide victory prompted expectations of forex intervention due to her loose fiscal policies.