- The EUR/USD has bounced back toward 1.1700 amid mixed data, affecting the dollar and reducing expectations for a Federal Reserve rate cut.
- Retail sales in July increased by 0.5%, aligning with predictions, but this was also influenced by a June rise that surpassed 0.9%.
- The CME FedWatch tool indicates an 88% likelihood of a 25 basis point rate cut by the Fed in September.
The Euro (EUR) is seeing a resurgence against the US dollar (USD) as it heads toward the 1.1700 level. This movement comes as mixed macroeconomic data is placing pressure on the dollar.
The report on retail sales for July indicated a 0.5% month-over-month increase that matched forecasts, yet there was a more significant 0.9% rise that builds on June’s figures. Year-over-year, retail sales climbed 3.9%, which is a slowdown from the previous 4.4%. Furthermore, the retail sales management group—a key contributor to GDP—rose only 0.5%, falling short of the 0.8% estimate. This deceleration hints at a cooling in consumer demand despite ongoing inflationary pressures.
On another note, the Empire State manufacturing index saw a sharp rise to 11.9 in August, significantly above the consensus prediction of zero, up from 5.5 in July. These strong figures reflect a robust local manufacturing sector, but the market seems to overlook these surprises, concentrating instead on softer consumption trends.
The US Dollar Index (DXY) has remained stable near 97.80 for almost two weeks, reacting to the softer retail sales data. This dip in the dollar has allowed the EUR/USD to recover lost ground from Thursday.
According to the CME FedWatch tool, market expectations for the Federal Reserve’s September meeting now stand at a 92% chance of a 25 basis point reduction. However, stronger producer price indexes (PPIs) and resilient retail sales reports have tempered these hopes.
Looking ahead, attention is shifting toward the University of Michigan’s Consumer Sentiment Report for August, which may reflect changes in household expectations. The consumer sentiment index is expected to rise slightly from 61.7 to 62.0, although the forecast index is anticipated to dip from 57.7 to 56.5.
