NEW YORK, Aug 15: The US dollar weakened on Friday after official data showed an unexpected decline in retail sales in July, adding to concerns about the strength of consumer demand and influencing expectations surrounding Federal Reserve monetary policy.
Retail sales fell 0.6% last month after a 0.2% increase in June. Economists surveyed by Reuters had expected sales to rise 0.1%. The figures, which primarily track goods spending and are not adjusted for inflation, pointed to softer consumer activity in the world’s largest economy.
The weaker data reinforced concerns that economic momentum may be slowing. Market participants are also assessing recent inflation figures that came in softer than anticipated.
Recent consumer and producer price data have reduced expectations of an immediate Federal Reserve rate move. Traders are currently pricing a 31% probability of a rate hike at the September 15-16 meeting, compared with a 69% likelihood of an increase by December.
The US labour market has also emerged as a concern after July employment data showed employers unexpectedly reduced payrolls.
The dollar index, which tracks the greenback against a basket of major currencies, declined 0.25% to 99.67.
The euro gained 0.32% to $1.1564 after touching $1.1585, its strongest level since June 17. Sterling advanced 0.33% to $1.353 and earlier reached $1.3561, its highest since May 12.
Currency traders were also monitoring developments surrounding the US conflict with Iran and diplomatic efforts to reopen the Strait of Hormuz. Oil prices moved higher amid renewed attacks on tankers and escalating rhetoric between Washington and Tehran.
The Japanese yen edged up 0.08% to 159.37 per dollar but remained on course for a weekly decline of about 1%. The currency has remained under pressure as the impact of recent US and Japanese intervention has diminished.
Reuters reported that the Bank of Japan could raise interest rates as early as September and may consider further increases. Since ending its decade-long monetary stimulus programme in 2024, the central bank has increased borrowing costs roughly twice a year, including a June move that lifted rates to a 31-year high of 1%.
Bank of America analysts said recent intervention had failed to reverse bearish sentiment towards the yen, with traders increasingly expecting either higher Japanese interest rates or another round of official currency purchases.
According to the bank’s latest foreign exchange and rates sentiment survey, most fund managers believe a terminal rate of 2% could help stabilise the Japanese currency. Achieving that level would require four additional 25-basis point increases.
The yen had approached 164 per dollar before authorities intervened in July. Traders continue to watch the 160 level as a possible trigger for further official action.
