US Dollar Momentum Indicators Stretch Ahead of FOMC Meeting
The US dollar's momentum indicators may be overstretched due to recent downward data surprises. A loss of US jobs in July and softer inflation gauges, combined with an unexpected decline in July retail sales, have led market participants to downgrade their expectations for a rate hike at next month's Federal Open Market Committee (FOMC) meeting.
The Fed funds futures finished last week with less than eight basis points of tightening discounted for next month, down from 18 basis points at the end of July. While upcoming US data on industrial output and preliminary August PMI may not significantly impact market expectations, the focus remains on the FOMC minutes, which are expected to be mostly stale but with a twist.
The decline in retail sales is particularly noteworthy, as it fell at an annualized pace of 7.6% (or -0.7%) in July, following a 8.4% (0.7%) increase in June. This marks the worst monthly performance for sales volumes since May 2025.