- The United States Census Bureau will release Retail Sales data on Friday.
- US Retail Sales are expected to have increased by 0.5% in July, in line with June’s 0.6% rise.
- These figures are unlikely to significantly alter the consensus for a Fed rate cut in September.
The United States Census Bureau will publish the country’s Retail Sales report on Friday. Market analysts anticipate a 0.5% monthly growth in the headline Retail Sales in July, following a slightly higher increase in June, suggesting that consumption stayed strong. Consumers seem to have rushed to Main Street, responding to summer sales and eager to avoid further price hikes from higher trade tariffs.
Consumer spending unexpectedly rebounded in June following the 0.9% decline in May. Retail and food services grew 0.6%, totalling USD 720.1 billion in June, fuelled by a broad-based recovery. Excluding autos, sales of all other products increased 0.5% compared with the previous month.
The data release will find the Greenback on its back foot. The moderate consumer inflation numbers seen earlier in the week have boosted investors’ confidence that the Federal Reserve will finally cut rates at its next meeting in September, triggering a risk-on mood that is weighing on the US Dollar.
The USD Index (DXY), which shows the value of the Dollar against a basket of six majors, has depreciated about 2.3% so far in August, reaching lows below the 98.00 mark.
The market is almost fully pricing an interest rate cut in September, and investors will be looking at July’s consumption figures for confirmation. A slight moderation in retail consumption, as expected, might be the “Goldilocks” reading that highlights a somewhat softer consumer spending, but without triggering concerns of a recession. This would allow the central bank to ease its monetary policy to support a softening labour market.
What to expect in the July US Retail Sales report?
The headline Retail Sales is likely to show a 0.5% increase, after June’s 0.6% growth. The core Retail Sales, which exclude the automobile sector, are expected to have shown a somewhat larger moderation, with a 0.3% increment, after the 0.5% advance seen in June.
All in all, July’s Retail Sales report is expected to reflect that US consumption remains resilient, as buyers responded to summer sales, anticipating their purchasing decisions to avoid the impact of tariffs on prices. Automobiles are seen as the main driver for July’s gains for the second consecutive month, but most retail sectors are expected to reveal higher sales from the previous month.
“A bounce in auto sales and higher prices during the [July] month are mostly behind the ‘stronger’ retail print,” said economists at Wells Fargo ahead of the data release. Still, consumers have shown signs of spending fatigue recently, they said.
“We suspect the moderating job market and concern over tariff-induced price pressure has led consumers to grow more choosy,” they added.
When will US Retail Sales data be released, and how can it affect EUR/USD?
The US Retail Sales data for July is due at 12:30 GMT. Unless the numbers show a significant deviation from the market consensus, July’s consumption figures are unlikely to stand in the way of a September rate cut by the Federal Reserve, which is nearly fully priced at the moment.
In this context, the data release will fail to provide any significant support to a softening US Dollar, which is expected to remain vulnerable, as hopes of an easier monetary policy will likely fuel investors’ appetite for risk.
The EUR/USD pair has rallied nearly 3% so far in August, as soft US labour data and recent comments from Fed officials have prompted investors to ramp up expectations of Fed rate cuts. The immediate bias is positive, but the pair needs to breach the trendline resistance at 1.1735 to clear the path towards July’s highs at first 1.1785 and then 1.1830.
(This story was corrected on August 15 at 09:55 GMT to say that today’s is July’s Retail Sales report, and not February’s as it was previously reported )
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
