US Dollar Index Slips Toward 98.00 Ahead of Key Retail Sales Data

US Dollar Index Slips Toward 98.00 Ahead of Key Retail Sales Data

The US Dollar Index (DXY), which tracks the performance of the greenback against a basket of six major currencies, edged lower to around 98.15 during Friday's early Asian trading session. The decline comes as markets increasingly price in the likelihood of a Federal Reserve interest rate cut in September, dampening demand for the US dollar.

Market participants are now turning their focus to the upcoming release of the July US Retail Sales data, scheduled for Friday afternoon. The report is expected to offer fresh insight into the health of consumer spending, a key component of US economic growth. Alongside that, the University of Michigan’s preliminary Consumer Sentiment Index will also be released, potentially adding to market volatility.

Despite the softer dollar, some recent US economic data has surprised to the upside. The Producer Price Index (PPI) rose 3.3% year-over-year in July, significantly above both the previous reading of 2.4% and the market expectation of 2.5%. Core PPI, which excludes food and energy, also jumped to 3.7%, compared to 2.6% in June and 2.9% forecasted.

Additionally, the Initial Jobless Claims for the week ending August 9 fell to 224,000, down from the previously revised 227,000, beating the forecast of 228,000. The lower number of claims suggests a still-resilient labor market, which may challenge the narrative for imminent rate cuts.

However, despite the solid economic prints, investor sentiment remains tilted toward a more dovish Fed, especially amid lingering global uncertainties and concerns over future growth. As a result, the DXY is showing signs of weakness, retreating toward the 98.00 support level.

The next key catalyst for the greenback will be how today's Retail Sales figures influence expectations around monetary policy. A strong report could halt the dollar’s slide, while weaker-than-expected numbers may reinforce the case for a near-term rate cut by the Fed.