US Retail Sales to Rise Slightly as Fed Rate Hike Awaited Next Week

Black Friday Data to Boost American Retailers

The American economy has shown mixed signs of recovery. Employment is still the strongest component and has posted two consecutive non farm payrolls (NFP) reports that have exceeded forecasts. Manufacturing and non manufacturing purchasing manager’s indices (PMIs) and retail sales have underwhelmed and raise questions on the readiness of the U.S. economy to cope with higher rates. Consumers have opted to save their wage increases, but U.S. retailers are confident that the holiday retail season that started with Thanksgiving will show an improvement in consumer spending.

The U.S. retail sales and core retail sales will be published on Friday, December 11 at 8:30 am EST. The WSJ forecasts a 0.3 percent for both U.S. retail sales and sales excluding autos. Also to be released on Friday is the U.S. production price index (PPI) which is anticipated to remain flat at 0.0 percent and a slight gain of 0.1 percent for the measure excluding autos. The University of Michigan preliminary Consumer Sentiment will close out the week and is expected to rise to 92.3. The UoM report will be published at 10:00 am EST.

The EUR/USD has appreciated 0.22 percent this week. There has been little economic data for the market to trade on in a period that is sandwiched between the two major central bank actions of the last quarter of 2015.

The European Central Bank (ECB) unraveled the monetary policy divergence trend that had priced in added quantitive easing (QE) in Europe and a benchmark interest rate hike in the United States. The failure to signal the extent of the ECB’s commitment gave the central bank a black eye with the EUR at a 6 week high as the battle with deflation continues. The single currency had depreciated as the Federal Reserve had announced its intention to hike rates in the December 16 meeting. ECB President Mario Draghi used strong rhetoric to drive the point that policy members were ready to act. To do what they must, when instead they only met market expectations halfway triggering a USD selloff.

Not even a strong NFP for the second month in a row was enough to stop the single currency appreciation. The number of jobs added to the U.S. economy in October was revised upwards to 298,000 and the November additions were 211,000. The second consecutive month over 200,000 after four monthly disappointments since summer. Next week’s Federal Open Market Committee (FOMC) will be crucial as the Fed is gearing up to hike the U.S. interest rate for the first time in almost a decade. Given the uncertainty surrounding central banks that was triggered by the market reaction to the ECB the Fed has been forewarned about over promising and under delivering.
EUR/USD events to watch this week:

Friday, December 11
5:15 am EUR Targeted LTRO
8:30 am USD Core Retail Sales m/m
8:30 am USD PPI m/m
8:30 am USD Retail Sales m/m
10:00 am USD Prelim UoM Consumer Sentiment

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza