US dollar stumbles on US retail sales miss

The US dollar erased its initial gains on Tuesday after a softer-than-expected US retail sales print.

Meanwhile, the pound is broadly positive so far this morning, with GBP/EUR ticking up to €1.1856 and GBP/USD buoyed at $1.2721. GBP/CAD is stable at CA$1.7453, while GBP/AUD is flat at AU$1.9075 and GBP/NZD holds steady at NZ$2.0726.

Looking ahead, will a slowdown in UK inflation limit Sterling’s upside potential today?

What’s been happening?

The US dollar initially firmed yesterday, as a cautious market mood led investors to favour the safe-haven currency.

However, the ‘greenback’ then relinquished these gains following the publication of the latest US retail sales print.

USD investors were left disappointed as sales growth fell short of expectations in May, while April’s sales figures were revised lower.

The euro, meanwhile, was mixed on Tuesday after German economic sentiment printed below forecast.

While morale in Germany continued to improve this month, markets were expecting a more upbeat assessment of the current conditions in the Eurozone’s largest economy.

At the same time, the pound struggled to attract support yesterday, following a report which suggested that grocery price growth continues to slow, stoking expectations for a broader fall in inflation.

What’s coming up?

Kicking off today’s session was the publication of the UK’s latest consumer price index.

While inflation cooled in line with expectations, returning to the Bank of England’s (BoE) target rate of 2% for the first time since July 2021, the pound is on the rise so far this morning.

This uptick in Sterling appears linked to expectations that signs of sticky service inflation may encourage the BoE to deliver fewer rate cuts over the next 12 months.

Meanwhile, in the absence of any notable Eurozone data, the focus for EUR investors may turn back to the looming French election. This could leave the euro vulnerable amid ongoing fears that political deadlock could derail French economic reforms.

US economic data is also in short supply today. This may tie movement in the US dollar to market risk dynamics, with the US dollar potentially strengthening if a risk-off mood prevails.