US Dollar Gains Retail Sales Improve, Central Banks Save The Day

The Euro has fallen to $1.3625 after falling to a session low of $1.3605, as US economic data sparked gains for the greenback. Likewise, the British Pound plunged to a five-week low of $2.0083 amidst signs of softening inflation, and though the currency has recovered to $2.0127, it is still down quite a bit from Friday’s New York close of $2.0226. Meanwhile, carry trade-favorite Japanese Yen has started weaken as risk aversion subsides, sending the dollar up to ¥118.42, little changed from Friday’s New York close of ¥118.53.

US economic data surprised to the upside today, as retail sales during the month of July rose a stronger-than-expected 0.3 percent, while the June figure was revised up to -0.7 percent from -0.9 percent. Excluding autos and gas, the reading was even more encouraging, as sales rose 0.6 percent from the month prior. A breakdown of the data shows that clothing purchases led the increase, which is somewhat surprising after apparel retailers such as Abercrombie & Fitch, Gap Inc., and American Eagle Outfitters Inc. all reported dismal same-store sales for the month. Nevertheless, it appears that heavy discounting by stores such as Wal-Mart helped keep July's headline reading afloat and should help alleviate some concerns that consumer spending growth has stalled, especially after consumption slowed dramatically in the second quarter GDP report. 

US stock markets followed European equities higher, as trader sentiment became more positive after multiple central banks – including the Federal Reserve, Bank of Japan, and European Central Bank – continued to inject liquidity into the money markets. The New York afternoon saw the Dow Jones Industrial average up 71.29 points to 13,310.83 while the NASDAQ Composite gained 13.81 to 2,558.70. The S&P 500 posted the biggest percentage point gain, rising 0.63 percent, or 9.23 points, to 1,462.87.

Fixed income markets were mixed, as the benchmark 10-year Treasury Note edged slightly higher by 2/32 to 99 and 20/32, leading the yield on the contract to ease back 1 basis point to 4.798 percent. On the other hand, yields on 2-year Treasury Notes, which are more sensitive than longer-term debt to changes in monetary policy, rose 3 basis points to 4.481 percent.