The dollar fell after July retail sales unexpectedly dropped, adding to a run of soft US data that has traders scaling back bets on a Federal Reserve rate hike.
US retail sales fell 0.6% in July, the largest monthly drop in more than a year, against economist forecasts for a 0.1% gain and following a 0.2% rise in June. The weakness extended across autos and online spending, with a parallel drop in consumer sentiment reinforcing the picture of a cooling US consumer.
The dollar index declined roughly 0.27% on the news, as the combination of the retail sales miss, cooler CPI, and a flat headline PPI reading earlier in the week pushed the market-implied odds of a September Fed rate hike down to around 29-32%, from closer to 35% just a day earlier. Treasuries rallied on the report as investors priced in a more cautious Fed stance heading into the autumn meetings.
The data adds to a broader narrative of slowing US momentum that has weighed on the dollar for much of the past two weeks, with the euro and British pound both touching multi-month highs against the greenback in the wake of the report. Markets will now watch upcoming employment and inflation releases to see whether the softness in July’s numbers extends into August.
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