EUR/USD rebounds as US Retail Sales miss trims Fed rate cut expectations

• EUR/USD rebounds toward 1.1700 as mixed US data weighs on the Greenback and trims Fed rate cut bets.
• July Retail Sales rose 0.5% MoM, in line with forecasts but below June’s upwardly revised 0.9%; Control Group missed at 0.5% vs. 0.8% expected.
• The CME FedWatch Tool shows an 88% probability of a 25 basis point Fed rate cut in September, down from almost full pricing earlier in the week following a softer CPI report.

The Euro (EUR) edges higher against the US Dollar (USD) on Friday, with EUR/USD rebounding toward the 1.1700 mark as mixed US macroeconomic data weighs on the Greenback. A softer-than-expected July Retail Sales report raised concerns over the strength of consumer demand, prompting traders to trim bets on a Federal Reserve (Fed) rate cut in September.

The July Retail Sales report showed headline sales rising 0.5% MoM, in line with expectations but below the upwardly revised 0.9% gain in June. On a yearly basis, Retail Sales rose 3.9%, slowing from 4.4% previously, while the Retail Sales Control Group — a key component feeding into GDP — climbed 0.5%, missing estimates of 0.8%. The slowdown suggests consumer momentum may be cooling, even as inflationary pressures persist.

Meanwhile, the Empire State Manufacturing Index jumped sharply to 11.9 in August, well above consensus forecasts of zero and up from 5.5 in July. The strong print signals renewed strength in the regional factory sector, though markets largely brushed off the surprise upside, focusing instead on softening consumption trends.

The US Dollar Index (DXY) remains pinned near a two-week low around 97.80 after easing in response to softer US Retail Sales data. The renewed US Dollar softness helped EUR/USD recover ground and pare Thursday’s losses.

According to the CME FedWatch Tool, traders are now pricing in an 88% probability of a 25 basis point rate cut at the Federal Reserve’s September meeting, down from fully pricing it in earlier this week after a mild CPI print. However, stronger-than-expected PPI and resilient Retail Sales data have trimmed those expectations.

Attention now turns to Friday’s preliminary University of Michigan Consumer Sentiment report for August, with markets watching for signs of shifting household expectations. The Consumer Sentiment Index is forecast to edge higher to 62.0 from 61.7, while the Expectations Index is seen easing slightly to 56.5 from 57.7.