Dollar Falls as Weak Retail Sales and Consumer Sentiment Reports Reduce Rate Hike Odds

The US dollar index DXY declined by -0.41% as weak retail sales and consumer sentiment reports reduced the odds of a September Fed rate hike to 29% from 35%. The dollar was also affected by the drop in the 2-year T-note yield, although the 10-year T-note yield rose +1.8 bp.

Treasury Secretary Bessent announced that the administration will introduce unprecedented economic measures against Iran, favoring economic pressure over military action. However, tensions remain high as reports emerged of an Iranian attack on two Abu Dhabi oil vessels in the Strait of Hormuz.

The July US retail sales fell -0.6% m/m, weaker than market expectations of +0.1%. Ex-autos and gas, July retail sales declined by -0.2% m/m, below market expectations of +0.3%. The weak retail sales report suggested that US consumers are pulling back due to high prices, increased gasoline costs, and a lack of confidence in their finances.