The June US retail sales report exceeded expectations yesterday, with headline sales remaining flat on the month against a consensus 0.3% MoM drop. Slower consumer spending growth, moderating inflation, and rising unemployment rates may impact the sector going forward, and we still expect this to feed into a narrative of lower Fed rates, ING’s FX strategist Francesco Pesole notes.

USD to stabilize before the end of the week

“Those figures did not dent the market’s dovish call on the Fed. A September cut is fully priced in, and 65bp of easing is factored in by year-end. The reason why the US Dollar (USD) has been resilient despite the rise in dovish bets is undoubtedly the emergence of “hedges” for higher inflation, tariffs, and geopolitical risks ahead of a Trump re-election, which is perceived as more likely after the weekend incident.”

“Last week, we were still arguing for some short-term USD weakness on the back of US macro news, but after recent developments in this week’s price action so far, the risks for the dollar are much more balanced. Periods of USD outperformance this summer are more likely as markets have a clear inclination to play the “Trump trade” well ahead of November.”

“The US data calendar includes housing starts, building permits and industrial production for June today. The Fed will release the Beige Book this evening, which may signal some regional strains in the jobs market, ultimately making Fed communication drift further to the dovish side. We continue to expect some stabilisation in USD crosses before the end of the week.”