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European Session – Solid US retail sales lift dollar, Turkish Lira at record low on political uncertainty

The US dollar rebounded today after benefiting from a calmer yuan situation as China eased concerns in the markets after a third consecutive day of the Chinese currency’s devaluation. China’s central bank said there was no basis for further depreciation. The return of risk appetite as well as the release of upbeat US retail sales data also helped support the greenback.

US retail sales rose slightly in July, giving investors optimism for a Fed rate hike in September. July retail sales increased 0.6%, slightly above a forecast for a 0.5% increase. Meanwhile, June’s retail sales were revised up to show them unchanged instead of the previously reported 0.3% decline.

A separate report showing core retail sales (excluding automobiles, gasoline, building materials and food services), increased 0.3% following a revised 0.2% rise in June (from a previously reported 0.1% dip). However, July’s number missed expectations for a 0.5% increase.

The dollar jumped in reaction to the data to rise to 124.61 yen.

Other US economic data released today included initial jobless claims. Though they were higher-than-expected, claims for state unemployment benefits still held near a four-decade low and below the 300,000 threshold at 274,000 for the week ending August 8. Applications were expected to remain unchanged at 270,000 claims.

The broadly stronger dollar pushed the euro lower to 1.1079, off yesterday’s high of 1.1213. German CPI data came in as-expected at 0.1% y/y, and this also weighed on the euro. Focus will be back on Greece later today as the Greek Parliament is expected to ratify a bailout deal, one day after the government agreed on the framework of a 86 billion euro bailout with its creditors. Greek Prime Minister Alexis Tsipras said he was optimistic Parliament will approve the deal, which also has to be agreed on by other Eurozone members. But Greece is expected to meet a deadline for a 3.2 billion euro debt payment to the European Central Bank on August 20.

The British pound was flat against the dollar during the European session, trading between 1.5605 and 1.5633 before tumbling after the US data to 1.5573.

The Turkish Lira drew attention today after it reached a record low versus the dollar in reaction to news that coalition talks between Turkey’s ruling AK Party and the main opposition CHP party ended negatively, potentially setting the stage for snap elections later this year. The AKP failed to win a parliamentary majority in the June 7 election, leaving it unable to govern alone for the first time since it came to power in 2002.

The dollar rose to 2.8260 against the Turkish Lira in early US session trading, up from the day’s low of 2.7712.

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