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US dollar slides on weak retail sales, yen bears step in

The dollar’s move helped reduce USDJPY intervention risk, with hedge funds cutting their yen short positions by half after the prior intervention.

Reported · Written up by our desk · Major Pairs

The US dollar fell back to a two-month low after July retail sales unexpectedly dropped 0.6%, versus a 0.1% increase expected, according to analysis from Action Forex. The decline, alongside weaker University of Michigan consumer sentiment, has pulled back expectations for Fed tightening, with the likelihood of a September rate hike dropping to 31% and by year-end to 64%. Action Forex argues a federal funds rate hike in September is highly unlikely given slowing inflation, falling employment, and declining retail sales. The analysis also points to continued disinflation as the base case, while noting a potential disruption if Brent breaks out of its $80 to $90 per barrel trading range, with tensions in the Middle East raising that risk. In FX markets, the dollar’s weakness allowed USDJPY bears to push prices away from the key 160 level, lowering the risk of further currency interventions by the US and Japan, Action Forex reports. Following the prior intervention, hedge funds have halved their short positions in the yen, and speculators appear less confident than during May to July. Elsewhere, the same retail sales data supported a rebound in gold, which climbed back above $4,400 per ounce, Action Forex said. The analysis adds that gold’s trajectory may be supported whether the US environment turns into recession or stagflation, and it links Fed lag risk to any further weakness in inflation momentum if Brent remains contained.

Latest closeGold $4,432.00 ▲1.6%|Brent $88.59 ▲1.8%

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