USD Extends Gains on Retail Sales Data

A rebound in retail sales in the US in July has triggered further gains in the US dollar on Tuesday, sending the greenback to its highest level in almost three weeks.

Retail sales have been very underwhelming this year which has contributed to the view that the economy isn’t ready for another rate hike this year. The dollar was already relatively well bid heading into the release on the back of some hawkish comments from William Dudley on Monday and today’s release is doing that no harm. Not only did the July numbers comfortably beat expectations but the June numbers were also revised higher, providing an additional boost for dollar bulls.

While today’s report will likely increase the chances of another rate hike this year, it is still far from being priced in by the markets. The general trend of retail sales still remains worrying, despite the improvement over the last couple of months and 2% inflation still looks a pipe dream. That said, the dollar has been so heavily sold over the course of the year that even a slight unwinding of these trades could provide a near-term boost to the greenback. The dollar index has recently been languishing at levels seen only half a dozen times or so since the start of 2015 but not yet breached. With that in mind, it may take relatively little at the moment to get such a reaction in the dollar.

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