**U.S. Dollar Weakens Following Disappointing Retail Sales Report: In-Depth Analysis of EUR/USD, GBP/USD, USD/CAD, and USD/JPY**
*Original article by James Hyerczyk, FX Empire | Updated and Expanded with Additional Insights*
The U.S. dollar declined broadly on Tuesday, June 18, 2024, after a key economic report showed that American consumers pulled back on spending in May. Retail sales, a key barometer of consumer demand, rose just 0.1% on a monthly basis—missing analysts’ median forecast of a 0.3% gain. The weaker-than-expected data amplified bets that the Federal Reserve may begin cutting interest rates sooner than previously anticipated, fueling renewed selling pressure against the greenback.
This development comes at a time when markets are hyper-focused on the Federal Reserve’s policy trajectory. The central bank’s reluctance to shift aggressively toward rate cuts despite moderating inflation has kept the dollar underpinned for much of 2024. However, softer economic data, like the recent retail sales figures, might prompt Fed policymakers to adopt a more dovish stance in upcoming meetings.
Below is a detailed analysis of key FX currency pairs affected by the data: EUR/USD, GBP/USD, USD/CAD, and USD/JPY, complemented by insights from other recent reports and expert forecasts.
## U.S. Retail Sales: Weak Data Breaks Bullish Dollar Sentiment
According to the U.S. Census Bureau, retail sales rose just 0.1% in May, well below April’s downwardly revised 0.2% increase and analysts’ expectations for a stronger rebound. The softer May figure prompted some concern about the health of the U.S. consumer, who has largely shouldered the economy’s forward momentum in recent quarters.
Key Takeaways:
– Core retail sales, which exclude autos, gasoline, building materials, and food services, declined 0.1%.
– Control group sales, a key input to GDP calculations, also fell 0.1%, hinting at possible downward revisions to second-quarter GDP estimates.
– Gasoline prices were lower in May, which may partially explain the subdued headline number, though consumption trends appear to be softening more broadly.
Impact on Rate Expectations:
– Following the retail sales report, CME Group’s FedWatch Tool showed elevated odds of a September rate cut by the Fed, with futures pricing in a 65% chance of at least one rate reduction by that meeting.
– Treasury yields dipped across the curve, and U.S. 10-year yields dropped below 4.25%, reinforcing downward pressure on the dollar.
## EUR/USD: Euro Capitalizes on U.S. Dollar Weakness
EUR/USD surged in response to the weaker U.S. retail sales data, rising above the psychologically significant 1.0700 level as traders scaled back Fed rate hike bets. The euro was also bolstered by hawkish commentary from European Central Bank (ECB) officials, who suggested that inflation risks in the eurozone remain persistent.
EUR/USD Key Developments:
– The pair climbed toward 1.0750, its highest in nearly two weeks.
– Technical momentum has turned bullish, with price action comfortably above the 20-day moving average.
– Support now seen at 1.0660; resistance lies near 1.0785.
ECB Commentary:
– ECB policymaker Joachim Nagel commented that monetary policy should remain restrictive for longer to prevent a resurgence of inflation, providing underlying support for the euro.
– While ECB cut its benchmark rate in June by 25 basis points, further cuts are seen as dependent on inflation data rather than guaranteed.
Outlook:
– If U.S. economic data continue to weaken relative to the euro area, the EUR/USD may consolidate gains and push toward the 1.0800 area.
– Key upcoming data include Eurozone flash PMIs and the U.S. PCE inflation report later this month.
## GBP/USD:
Read more on USD/CAD trading.