Dollar Sold Off On Fed Dovish Repricing Post Inflation Data

OVERVIEW : Friday, August 14th, 26’

Markets remained cautious as the US intensified its maximum pressure campaign on Iran, with Treasury Secretary Bessent signalling further measures targeting Iranian bank accounts and digital currencies, alongside economic isolation and the blockade around the Strait of Hormuz. Further announcements are expected next week, keeping geopolitical and energy risks elevated. The USD remained softer as markets continued to digest the July US data, with in-line CPI, soft PPI and weaker retail sales reinforcing the dovish side of the Fed debate. Fed’s Goolsbee noted that inflation readings have improved and highlighted tariffs and oil as potentially temporary inflation drivers, while describing the US economy as steady. Precious metals edged higher as DXY softened and retail sales added to the dovish tone. Fitch’s affirmation of the US at AA+ with a stable outlook provided little immediate market impact.

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US DOLLAR

USD remained under pressure and underperformed on the day as the softer US data reinforced the dovish side of the Fed repricing. July retail sales fell 0.6% M/M vs. 0.1% expected, while the Y/Y rate slowed to 5.0% from 6.7%, pointing to weaker consumer momentum. Michigan sentiment also deteriorated to 51.0, well below expectations, although the rise in 1-year inflation expectations to 4.3% provided some offset by keeping inflation risks elevated. Fed’s Goolsbee’s comments that recent inflation pressures from tariffs and oil may prove temporary added to the softer policy narrative, leaving the Dollar vulnerable despite the stickier inflation expectations.

Data:

  • US Retail Sales (Jul MM) -0.6% vs. Exp. 0.1% (Prev. 0.2%). - -0.6%
  • US Retail Sales (Jul YY) 5% (Prev. 6.7%).
  • US Michigan Consumer Sentiment Prel (Aug) 51.0 vs. Exp. 54.5 (Prev. 55.2)
  • US Michigan Inflation Expectations Preliminary (Aug) 4.3% (Prev. 4.2%) -


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EURO

EUR had marginal strength on the day, with Eurozone GDP and employment data broadly in line with expectations providing a steady domestic backdrop. The main driver remained broad USD selling, with EUR/USD reaching a weekly high of 1.15858 as the Dollar came under pressure.

Data:

  • European GDP Growth Rate 2nd Est (Q2 QQ) 0.4% vs. Exp. 0.4% (Prev. 0.0%).
  • European GDP Growth Rate 2nd Est (Q2 YY) 1.0% vs. Exp. 1% (Prev. 0.5%).
  • European Employment Change Prel (Q2 QQ) 0.1% vs. Exp. 0.1% (Prev. 0.1%).
  • European Employment Change Prel (Q2 YY) 0.5% vs. Exp. 0.6% (Prev. 0.5%).
  • German Wholesale Prices (Jul MM) 0.2% vs. Exp. 0.4% (Prev. -0.7%).
  • German Wholesale Prices (Jul YY) 5.3% (Prev. 4.9%).


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GREAT BRITISH POUND

GBP had marginal strength on the day, primarily supported by the broader USD selloff. With limited domestic catalysts.

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AUSTRALIAN DOLLAR

AUD had marginal strength on the day, although NZD attracted the bulk of the bid across the two Antipodean currencies.


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CANADIAN DOLLAR

CAD had choppy price action on the day but remained well supported, with firm crude prices continuing to provide a favourable backdrop for the commodity-linked currency.

Data:

  • Canadian Wholesale Sales Final (Jun MM) 2.8% vs. Exp. 2.7% (Prev. 0.0%).
  • Canadian Manufacturing Sales Final (Jun MM) 0.1% vs. Exp. -0.1% (Prev. 1.3%).


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NEW ZEALAND DOLLAR

NZD outperformed across G10 on the day, extending its rebound against the USD after the recent weakness following Thursday’s softer inflation expectations. The Kiwi also benefited from the manufacturing sector remaining in expansion, with the BNZ-BusinessNZ PMI at 54.3, despite a moderation from June’s strong 60.1 reading.


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JAPANESE YEN

JPY had choppy price action on the day but sold off during the US session, giving back earlier gains. Markets continue to price around an 80% probability of a 25bp BoJ hike in September, with recent reports pointing to government support for a faster tightening path, although the timing remains between September and October.

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SWISS FRANC

CHF continued to lack demand on the day, with the rate differential and its no-yield safe-haven profile remaining the key headwinds. The strong Swiss GDP print, at 1.5% Q/Q vs. 0.3% expected, provided little support for the currency as carry dynamics continued to dominate.

Data:

  • Swiss GDP Growth Rate Flash (Q2) Q/Q 1.5% vs. Exp. 0.3% (Prev. 0.4%).