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Dollar gains on solid retail sales, ahead of Fed policy meeting

New York

THE dollar index climbed to its highest in almost two weeks on Friday after encouraging retail sales data for May released ahead of a Federal Reserve policy meeting this week eased fears that the US economy is slowing sharply.

The Commerce Department said retail sales rose 0.5 per cent last month, just below economists' expectations of a 0.6 per cent gain. Data for April was revised up to show retail sales gaining 0.3 per cent, instead of dropping 0.2 per cent as previously reported. The dollar index against a basket of currencies was last 97.35, up 0.53 per cent on the day and the highest since June 3.

The Fed is not widely expected to lower rates when it meets on June 18-19, though investors will watch for new signals that a cut by the US central bank may come in July.

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Interest rate futures traders are pricing in a 23 per cent chance of a cut in June, and an 87 per cent likelihood of at least one cut in July, according to the CME Group's FedWatch Tool.

The dollar has recovered in the last week from a weak start to June, as investors consider whether expectations for US interest rate cuts have gotten too far-fetched relative to the data.

With international economic growth slowing, investors are nervous that US President Donald Trump will impose tariffs on Japan and Europe, which could result in more dovish central banks globally and give the dollar a relative advantage.

The US economy is also seen as better placed to handle trade tensions than other countries.

The dollar "has benefited to date from negative globalisation news as the domestic side of the US economy has looked sufficiently robust to deal with trade-related headwinds", Morgan Stanley analysts said in a report on Friday. REUTERS