Dollar falls on surprise drop in US retail sales

The dollar fell on Friday after data showed US retail sales unexpectedly declined in July, helping send the euro and sterling to multi-month highs, as traders weighed Federal Reserve policy.

Retail sales dropped 0.6 percent last month after an unrevised 0.2 percent gain in June.

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Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, edging up 0.1 percent.

“We are clearly having signs of poor consumption,” said Juan Perez, director of trading at Monex USA in Washington.

“This evidence is clearly showing that there is an economic slowdown in the United States.”

Softer-than-expected consumer and producer price inflation data this week has already tempered expectations that the Fed will raise rates at its September 15-16 meeting.

Traders are now pricing in just a 31 percent probability of a September hike, alongside a 69 percent chance of a rate increase by December.

Concerns over the labor market have deepened as well, after July’s payrolls report showed employers unexpectedly shed jobs last month.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.25 percent to 99.67.

The euro rose 0.32 percent to $1.1564 and got to $1.1585, the highest since June 17.

Sterling strengthened 0.33 percent to $1.353. It reached $1.3561, the highest since May 12.

Traders are also focused on the US conflict with Iran and efforts to open the Strait of Hormuz.

Crude oil prices climbed on Friday over renewed attacks on tankers and a war of words between the Trump administration and Iran’s leadership.

The Japanese yen strengthened 0.08 percent to 159.37 per dollar.

It is on track for a weekly decline of around 1 percent as the effects of recent US and Japanese intervention continued to fade.

That has left traders betting that either a rate hike or another round of official buying will be needed to arrest the currency’s slide.