The latest US retail sales data did not disrupt expectations of a near-term interest rate hike by the Fed, resulting in the US dollar remaining in a sideways trend.

The bearish momentum of the US dollar has eased in this week's trading, but its movement is still on a downward trend. The US Dollar Index (DXY) is moving sideways near the significant psychological level of 100.00 after the release of US retail sales data today (July 18), while market participants gather new references to predict the next moves of the Federal Reserve.

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US retail sales only grew by 0.2% in June, significantly lower than the previous consensus expectation of 5% growth seen in May. Core retail sales also showed weakness, growing only by 0.2%, which was weaker than the consensus estimate of 0.3%.

The weak monthly retail sales growth has also impacted the annual data. Annual retail sales for all categories recorded a decline from 1.96% to 1.49%, falling short of the consensus estimate of 1.60%.

However, there was one data point that saw an increase - retail sales excluding automotive, gasoline, building materials, and food services. This data recorded an actual increase of 0.3%, compared to the consensus projection of 0.0%.

Bipan Rai, Head of North American FX Strategy at CIBC Capital Markets, mentioned that the disappointing retail sales data indicates progress in the Fed's efforts to combat inflation. This progress is significant enough to affect domestic demand and the US Gross Domestic Product (GDP). However, this development has not affected the expectation of a Fed rate hike in the near future.

The latest data shows that market participants are still fully convinced that the Fed will raise interest rates by 25 bps at the FOMC meeting on July 25-26. However, there are no high expectations for further rate increases. The same data also indicates that the market predicts the Fed will cut interest rates at the end of the year.

The performance of the US dollar is currently varied. GBP/USD is holding near multi-month highs around 1.3100 for three consecutive days. Meanwhile, USD/JPY continues to be under pressure around the 138.50 range.

The US dollar has gained against several other major currency pairs. EUR/USD briefly reached new highs since February 2022 but was then pushed back by dovish ECB statements. AUD/USD is attempting to recover around the 0.6830 range but is still burdened by disappointing Chinese economic data and RBA meeting minutes.