The US dollar declined on Friday following a surprise 0.6% drop in retail sales in July, according to data reported by livemint.com. This decline came after a 0.2% increase in June and contrasted with economists' expectations of a 0.1% rise. The weaker retail sales contributed to the euro and sterling reaching multi-month highs.
The retail sales data, which primarily covers goods and is not adjusted for inflation, indicated weaker consumer spending. Juan Perez, director of trading at Monex USA in Washington, said the figures point to signs of poor consumption and an economic slowdown in the United States. This data follows recent softer-than-expected consumer and producer price inflation reports.
The decline in retail sales has influenced market expectations regarding Federal Reserve policy. Traders have reduced the probability of a rate hike at the Fed's September 15-16 meeting to 31%, reflecting tempered expectations due to the softer economic indicators. The drop in retail sales adds to concerns about the pace of economic growth in the US and impacts currency markets globally.
The Federal Reserve's upcoming meeting on September 15-16 will be closely watched to see how policymakers respond to the recent economic data, including the retail sales decline. The market's current pricing suggests limited chances of a rate increase, with the dollar's performance likely to remain sensitive to further economic reports.