The Dollar trade-weighted index has weakened slightly in today’s session to a one-month low, despite another strong set of retail sales data.
US retail sales increased 0.4% mom in August, twice as fast as expected, taking the year-on-year rate to 4.1%. The July figure was also revised upwards to 0.8% mom from 0.7% mom and retail sales have now increased for six consecutive months, the longest stretch since June 2017. Buoyant US consumer confidence is fuelling robust consumer demand, which accounts for two-thirds of US GDP, and in turn reducing the odds of the US economy going into recession. The Atlanta Fed Now growth tracker has GDP growth at 1.9% qoq annualised in Q3, only down marginally from 2.0% qoq in Q2.
However, markets are still pricing in a full 25bp Fed rate cut at Wednesday’s policy meeting and a further 25bp of cuts in the remainder of the year. While a 25bp rate cut looks in the bag next week it remains unclear whether the Fed will cut a third time before year-end, particularly if the US and China are able to row back their ongoing trade war.
