Having been lifted by stronger job numbers and then higher price figures over recent weeks, the dollar direction today will be determined by the US consumer. Consumption has been a major driver of US growth in the second half of 2023, with economists struggling to pinpoint the exact timing of when 500bp of rate hikes will slow consumption. We and the market are looking for some softening in the January retail sales figures today, but the consensus of a 0.2% month-on-month increase in the retail sales control group (from +0.8% MoM in December) hardly signals cause for alarm.

Barring a huge downside surprise in retail sales or a surge in initial jobless claims (to support the anecdotal news of rising US layoffs) we do not think the dollar has to come too much lower. Subdued cross-market volatility is keeping interest in the carry trade alive and also benefitting the high-yielding dollar. We favour DXY staying bid in a 104.50-105.00 range.

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