Dollar Falls on Surprise Drop in U.S. Retail Sales

What happened

The dollar fell on Friday after U.S. retail sales unexpectedly declined 0.6% in July. The euro and sterling hit multi-month highs. The dollar index dropped 0.25% to 99.67. The euro rose 0.32% to $1.1564, reaching $1.1585, the highest since June 17. Sterling strengthened 0.33% to $1.353, hitting $1.3561, the highest since May 12. The yen strengthened 0.08% to 159.37 per dollar. Traders are pricing in a 31% probability of a Fed hike in September and a 69% chance by December.

Why it matters

Softer inflation data and a July jobs report showing employers shed jobs suggest an economic slowdown. This has tempered expectations for a Fed rate hike in September. Additionally, the yen is on track for a weekly decline of around 1% and is at 40-year lows, prompting concerns about the Bank of Japan's ability to stabilize the currency without further intervention.