US Retail Sales Might Not Aid Dollar Recovery

The upcoming release of June’s retail sales data by the U.S. Census Bureau, scheduled for Wednesday at 12:30 GMT, may not provide the much-needed boost to the ailing dollar. The data, which accurately reflects consumer demand, will be analyzed closely as the Federal Open Market Committee (FOMC) meeting in July looms. However, even if the data forecasts are promising, they might not be sufficient to halt the recent downward spiral of the U.S. dollar.

The U.S. dollar index recently slipped below the significant 100 mark, hitting a 15-month low. This decline was primarily due to the disappointing U.S. Consumer Price Index (CPI) inflation figures. These weaker-than-expected figures did not significantly impact the rate hike expectations for this year, but they did lend support to the narrative of a potential rate cut in 2024.

As we draw closer to the FOMC policy meeting next week, Fed policymakers have entered a blackout period. This period restricts them from using public communication to alter rate-cut expectations and possibly rescue the dollar. In this scenario, U.S. retail sales, coupled with initial weekly jobless claims and monthly housing data, stand as the only potential market catalysts.

Analysts anticipate a slight increase in retail sales growth to 0.5% month-on-month, up from the previous 0.3%. If realized, this would mark the second-fastest retail sales growth this year. The core measure, which excludes automobile sales, is projected to rise from 0.1% to 0.3%. A revival in these numbers could signify robust consumption as we move into the second half of 2023, a period where Fed policymakers predict relatively subdued economic growth.

However, the annual trend in retail sales is far from inspiring. Retail sales have seen a substantial drop this year on an annual basis. Excluding the downturn caused by the pandemic, growth fell to its lowest in three years in April at 1.20%, with a modest rebound to 1.6% in May. The deceleration in inflation and a stable labor market might prompt additional spending during the summer months, as indicated by the recent positive preliminary reading on consumer sentiment from the University of Michigan. Nevertheless, a monthly rebound may do little to change the overcast trend.

In conclusion, while the forthcoming retail sales data will provide valuable insights into consumer behavior and economic trends, it may not be the lifeline the U.S. dollar needs given the current economic climate. As such, other factors such as policy decisions, market sentiments, and global economic indicators should also be considered when assessing the potential recovery of the U.S. dollar.