Dollar Falls Amid Weak US Retail Sales and Consumer Sentiment Reports

The dollar index (DXY00) declined by -0.27% on Friday due to weak US retail sales and consumer sentiment reports, reducing the odds of a September Fed rate hike to 32%. The weak economic data included July's -0.6% m/m retail sales decline, which was much weaker than market expectations of +0.1%. Ex-autos and gas, July retail sales fell -0.2% m/m, also weaker than expected.

The University of Michigan's preliminary August US consumer sentiment index plummeted by -4.2 points to 51.0, down from 55.2 in July and below market expectations for a small decline to 55.0.

The markets are discounting a lower probability of a +25 bp rate hike at the next FOMC meeting on September 15-16, down from 35% on Thursday and 51% as recently as Tuesday. This has supported the euro's interest rate differentials, with the EUR/USD (^EURUSD) rising +0.34% on dollar weakness.