The U.S. dollar declined after weaker-than-expected retail sales data raised concerns about slowing consumer activity and reduced expectations for a Federal Reserve rate hike. Traders are also watching the Bank of Japan’s potential rate increase as officials seek to support the weakening yen.
U.S. Retail Sales Signal Consumer Weakness
U.S. retail sales fell 0.6% in July after an unrevised 0.2% increase in June, according to government data. Economists had expected sales to rise 0.1% during the month.
The decline added to concerns that consumer spending, a key driver of the U.S. economy, may be losing momentum.
“We are clearly having signs of poor consumption,” said Juan Perez, director of trading at Monex USA. He added that the data points to signs of an economic slowdown in the United States.
Fed Rate Hike Expectations Decline
Markets have reduced expectations for a Federal Reserve rate increase following softer inflation data and weaker labor market signals.
Traders are now pricing in a 31% chance of a rate hike at the Fed’s September 15-16 meeting, while the probability of a rate increase by December stands at 64%.
Expectations had already shifted after July employment data showed U.S. employers unexpectedly reduced payrolls, adding to concerns about economic growth.
Dollar Weakens Against Major Currencies
The dollar index, which tracks the greenback against a basket of currencies including the yen and euro, fell 0.3% to 99.67.
The euro gained 0.3% against the dollar to $1.1564, while the Japanese yen strengthened 0.1% to 159.35 per dollar.
Yen Faces Pressure Despite Recent Gains
Although the yen strengthened on Friday, the currency remained on track for a weekly decline of around 0.7% as the impact of recent U.S.-Japan currency intervention continued to fade.
Traders believe further action, including a Bank of Japan rate increase or additional currency intervention, may be needed to slow the yen’s decline.
The Bank of Japan is reportedly considering a rate increase as early as September, with the possibility of more aggressive tightening measures afterward.
Japan Considers Further Action on Yen Weakness
The yen previously fell to 40-year lows near 164 per dollar before Japanese and U.S. authorities intervened in currency markets in July.
The 160 level has become a key threshold for traders, with many watching whether another decline toward that level could trigger renewed official action.
The latest move mirrors a similar pattern seen in May, when the yen weakened again after an earlier round of government intervention.
