At the recent Fed meeting, Chairman Powell briefly mentioned consumer spending, but the focus was mainly on inflation and the Fed’s dot plot. The market was particularly interested in the Fed members’ expectation of a rate move in 2024. Fed hawks might become more aggressive this week, especially with a 72% probability of a rate cut in September. However, data will ultimately determine the Fed’s action plan.
The May retail sales report will be released on Tuesday, providing insight into the strength of domestic demand. Consumer spending in the US has been supported by a slowdown in inflation and consistent increases in earnings. However, there are concerns about the high levels of credit card borrowing. Forecasts suggest positive retail sales figures, which may not be welcomed by the doves.
The US dollar has been benefiting from political risks in the euro area and the hawkish Fed meeting. A slowdown in consumer spending could lead to a gradual unwind of the dollar’s recent gains. On the other hand, another strong report may not significantly benefit the dollar, with the focus shifting to the US stock market’s reaction.
Overall, the market is eagerly anticipating the retail sales data release to gain further insights into the Fed’s potential actions. The outcome of the report could impact both the dollar’s performance and the euro/dollar pair. Traders should pay close attention to the data to make informed decisions in the current market environment.