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However, the manufacturing sector showed signs of strain. Industrial Production fell by 0.3%, missing the -0.2% forecast, while the Capacity Utilization Rate slipped to 77.8% from 78.2%. This contraction suggests cooling momentum in the production side of the economy.
The Business Inventories m/m reading matched expectations at 0.2%, and the NAHB Housing Market Index ticked up to 40 from 39, signaling a slight improvement in builder sentiment.
Tariffs and Trade War Risk Undermine Sentiment
Despite upbeat consumption data, the dollar continues to face downside pressure as markets remain cautious amid tariff volatility and geopolitical risks. The recent reinstatement of 145% tariffs on Chinese goods, coupled with threats of further levies on high-tech imports, have reignited fears of a renewed trade conflict.
China’s retaliatory move, increasing tariffs to 125% on U.S. imports, only added to investor anxiety. The unpredictable policy shifts have amplified safe-haven demand and undermined the dollar’s appeal.
Fed Outlook and Dollar Headwinds
While strong retail sales may temporarily cushion the dollar, core inflation remains elevated and job market data mixed. The Fed is expected to maintain a cautious tone, with markets still pricing in 100bps of rate cuts in 2025.
Unless the dollar can reclaim key technical levels, near-term sentiment remains bearish as policy uncertainty and mixed economic signals weigh on confidence.
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