US Economy Cools Down, Reducing Fed Rate Hike Expectations

The US economy is showing signs of cooling down, which may prevent the Federal Reserve from raising interest rates in September. Friday's release of weaker-than-expected retail sales data for July added to the case against a rate hike. The market now only expects 7 basis points of hikes at that meeting, and expectations for a 50-basis-point tightening cycle into next year have been scaled back to 35.

The Fed's decision will have implications for global risk markets, which are currently benefiting from the prospect of lower interest rates. Investors are targeting long carry trade and commodity stories, pushing up currencies like the euro and pound against the Japanese yen and Swiss franc.

This week's data releases may not provide much new information, but investors will be watching for signs that the Fed is still committed to a hawkish monetary policy. The minutes of the 29 July FOMC meeting could provide insight into the central bank's thinking.