The growth of US retail sales fell from 5.88 percent to 2.94 percent, marking the worst performance since 2020.

The US retail sales data released tonight (April 14) was disappointing, but the US dollar index rebounded around 0.5% to the 101.50 range. This situation occurred because the specter of a recession made investors rush to sell off high-risk assets and switch to the US dollar.

dxyDXY Daily chart via TradingView

US retail sales recorded a drop of -1.0% (month-over-month) in March 2023. This marks a further decline from -0.2% in February and indicates a worse situation than the consensus estimate of -0.4%.

Annual retail sales growth also fell from +5.88% to +2.94%, recording the worst performance since 2020. This immediately increased market concerns about the risk of a recession in the US, leading to a drop in the US stock market. Market participants liquidated their riskier assets, pushing up demand for the greenback.

Joe Manimbo, a Senior Market Analyst at Convera, said, "Although the data (on US retail sales this time) worsens sentiment in the dollar, the greenback can receive a safe haven boost if the numbers weigh on risk appetite and stoke broader worries about global growth."

The dynamics of the US dollar at the time of writing reflect the situation described. Some of the highest-risk major currencies, such as the Kiwi, Aussie, and Sterling, fell sharply following the release of US retail sales data. The EUR/USD weakened to a more moderate degree as the euro remains supported by expectations of an ECB interest rate hike.

Calvin Tse, Head of America Macro Strategy at BNP Paribas Securities Corp, believes the USD will only receive limited support from risk-off actions. He revealed that the USD has retreated since March due to more data indicating a slowdown in the US economy, resulting in lower real yields and steeper yield curves. This situation and positive yields outside the US could lead to a long-term decline in the USD.

Tse specifically believes that the hawkish stance of the ECB will encourage the repatriation of funds from European and Japanese investors who have held assets in the US for over half a decade. He concluded, "Overall, this supports our long-standing thesis that we are at the beginning of a multi-year structural decline in the USD."