U.S. Retail Sales Could Deliver Blow to September Hike Expectations

The USD has fallen against major currencies as the decision by the People’s Bank of China (PBoC) to devalue the Yuan has hit investor’s expectations of an interest rate hike in September by the U.S. Fed. With little American economic data to guide the forex market it has priced in a delay in the rate liftoff and that is hurting the USD. The U.S. retail sales report that will be published on August, 13 at 8:30am EDT is heavily anticipated to give more clues about the Fed’s decision in the September monetary policy meeting.

Employment is the strongest component of the U.S. economic recovery, but so far all other indicators have been neutral to negative. The non farm payrolls data released on Friday, August 7 boosted the USD against all majors and gave green light to a September interest rate hike. Given the “data dependency” that the Federal Reserve has preached a negative core retail sales number could suddenly turn it into a red light especially after the surprise CNY devaluation announcement.

The last monthly sales report showed a drop of 0.3 percent in retail sales. Excluding automobiles the reading was slightly better at -0.1 percent. The May sales figures had been a positive outlier at 1.2 and Core 1 percent gains beating the forecasts. Retail sales in the U.S. have been on a negative trend in 2015. Bad weather, U.S west coast port strike and other factors have been cited by economists as denting consumer confidence even further and making them opt for saving. Retailers are hoping consumers spend their energy savings to boost sales.

Given the seasonality of the retail sales figures and the low benchmark that previous data has received it would not be a total surprise if the July numbers beat expectations. A string of two major indicators back to back for the USD would pressure the Fed into finally initiating a tightening monetary policy cycle by putting in place the first interest rate hike. On the other hand a lower than expected core retail sales could make the Fed push the timing back until December and if more negative indicators are released, leave it until the first quarter of 2016.

USD events to watch this week:

Thursday, August 13
8:30am USD Core Retail Sales m/m
8:30am USD Unemployment Claims

Friday, August 14
2:00am EUR German Prelim GDP q/q
8:30am CAD Manufacturing Sales m/m
8:30am USD PPI m/m
10:00am USD Prelim UoM Consumer Sentiment

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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