The Dollar retreated against its major peers on Thursday after rising to one-month highs, following the release of upbeat US economic data that revived expectations of an early rate hike by the Federal Reserve. Data on Wednesday showed US consumer prices recorded their biggest gain in nearly four years, jumping 0.6% in January, while retail sales also outpaced expectations, increasing 0.4% last month compared to the analysts’ poll of 0.1%.
Meanwhile, Fed fund futures are now pricing in 26.6% chance of a March hike and 74% chance of hike by June. That was up from prior day’s pricing of 17.7% and 68.0% respectively. Fed Chair Janet Yellen offered no additional insight on the timing of the central bank’s next rate hike in her second day of economic testimony, after her comments a day earlier had hinted at a fairly hawkish policy stance. Furthermore, Boston Fed Eric Rosengren said that he expects the US central bank to raise rates “at least as quickly” as the Fed’s median forecast, and “possibly even a bit more rapidly.
The British Pound rebounded after hitting a one-week low of 1.2385 against a stronger Dollar on Wednesday as UK data showed a slowdown in wage growth in the fourth quarter. Data from the Office for National Statistics showed a 2.6% rise in average weekly earnings year-on-year in the fourth quarter of 2016, below a consensus forecast of 2.8%.
The Bank of England (BoE) is monitoring wage growth as it considers whether to tighten monetary policy. Governor of the BoE, Mark Carney, said that if there was faster growth of wages, there could be an adjustment of interest rates.