USD to Resume Decline If June US Retail Sales Disappoint

This week’s key economic release is expected to be the US retail sales report for June, offering another crucial insight into the behavior of American consumers. Signs such as rising Federal Reserve rates indicate that some consumers may be overstretched. If June sales confirm the consumer weakness, then the USD will likely fall lower, extending the bearish move.

US Consumer Companies Feeling the Slump

Representatives from Pepsico and other consumer goods companies report that ongoing inflationary pressures and higher interest rates which have led to higher loan and mortgage repayments over the past few years have stretched the financial situation of the US consumers to limits. They also note that the macroeconomic environment, consumer health, and retail conditions have deteriorated, leading consumers to prioritize essential items over discretionary purchases.

Indications Suggest Negative Retail Sales

The markets are eagerly awaiting today’s release of June retail sales data, which will provide a crucial update on the US economy. While expectations lean towards a softer outcome, economists are divided on the impact of inflation on consumer spending and the earnings of recent retail giants.

June’s headline retail sales are predicted to decline by -0.3%, following a 0.1% increase in May. However, analyst projections are highly varied, ranging from -1.8% to +0.3%. Estimates for core retail sales (excluding autos) range from -0.3% to +0.3%, which would improve May’s -0.1% decrease to +0.1%. Recall that the super core (excluding gas and vehicles) experienced a 0.1% rise previously. The control indicator, often used as a measure of the GDP’s consumer spending component, will also be under scrutiny.

The Atlanta Fed is currently forecasting 2.0% GDP growth in Q2. According to ING, since this is a dollar-value statistic, “lower gas prices and declining auto sales point to an outright monthly decline in retail sales.” Additionally, lower consumer confidence suggests potential downside risks.

USD Retreating on Weaker US Economic Data

The US Dollar turned bullish in June as markets were pricing in a more hawkish FED, but with the deteriorating economic data, such as weaker consumer demand, lower employment and softer inflation. So, a negative reading from today’s retail sales, would further confirm the difficult position of the US consumer, which will translate into the economy. EUR/USD would head closer to 1.10, while GOLD would probably break above the previous top and put a new record high in place.