The dollar fell on Friday after data showed U.S. retail sales unexpectedly declined in July, as traders weighed Federal Reserve policy and the prospect of a Bank of Japan rate hike next month aimed at supporting the yen. Retail sales dropped 0.6% last month after an unrevised 0.2% gain in June, while economists polled by Reuters had forecast a 0.1% increase. 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, with traders now pricing in just a 31% probability of a September hike and a 64% chance of a rate increase by December. The dollar index fell 0.33% to 99.59, with the euro up 0.36% at $1.1568, and the Japanese yen strengthened 0.32% against the greenback to 158.97 per dollar. Reuters reported the Bank of Japan is set to raise rates as soon as September and is considering more aggressive hikes to follow, after exiting a massive, decade-long stimulus in 2024.
US retail sales miss and soft inflation lower Fed hike expectations, weakening USD; BOJ rate hike prospects strengthen JPY.
Weak US retail sales and soft inflation reduce Fed hike odds, pressuring yields; BOJ rate hike prospects may lift Japanese yields, but overall US yield decline dominates.
