Thursday’s data presented a decline in US retail sales last month, falling below consensus forecasts. As this comes off as a negative sign for the US economy, odds for the Federal Reserve to raise interest rates plunged further.

According to the Commerce Department, sales lost 0.3% in August from the month prior. July sales were revised to increase 0.1% from an initial flat estimate (0.0%). Economists had their expectations at only a 0.1% decline in August retail sales. Core retail sales dipped 0.1%, failing to pass a forecast gain of 0.2%.

In a separate report, US wholesale prices remained flat in August, due to sharp drops in the cost of food and gasoline.

Weaker retail sales over time are associated with a weaker economic growth and vice versa. Consumer spending makes up around 70% of US economic growth, thus the data on retail sales holds a vital position in determining the health of the world’s largest economy.


Fed Rate Hike Slashed Odds

The disappointing data had reduced the chances for the Fed to pursue a rate hike at its two-day policy meeting later this month, September 21-22.

Based on Investing’s Fed Rate Monitor Tool, the markets are pricing in on a measly 9% prospect of a September rate hike, slashed off the previous 15% before US retail sales data was reported today. Meanwhile, December chances fell from 54% to 50%.

USD Analysis

After today’s data report, the dollar remained steady still. Last week’s initial weekly jobless claims, which unexpectedly jumped less than expected to 260,000, still influenced Thursday’s sentiment. The US dollar Index was up 0.15% to 95.47.

The current price of the dollar still hasn’t recovered from its last high on September 13, falling from the anticipation of today’s data. The candlestick dated September 9 marked a significant increase for the dollar as it was the day the weekly initial jobless claims data was reported, revealing an optimistic result.


(Chart taken from tradingview.com)

But since the plunge on September 6, the dollar hasn’t quit gotten past even a three-day high. What happened on this day was that the reported US service sector activity grew at a slower pace than expected in August, thus dragging the dollar down.

We expect the dollar to plunge after today’s session as we take the steady position only an initial reaction to the release of downbeat US retail sales data. Adding to likely free fall of the US currency is the growing tension as the Fed’s meeting is drawing near.

US indices on Wednesday provided some hope for early gains, but as the day passed on it became clear that market pressures on the meeting next week and a rather exasperating crude oil value are distressing conditions.

The greenback has kept pace with other major currencies, but most forex pairs seem to be quiet and are not showing fearful signs of a rate hike from the Fed. Range trading has prevailed for a while and may still do, but next week’s Fed and Bank of Japan (BOJ) meetings will have an effect.

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