US Retail Sales Outlook: Dollar Weakness, GBP and EUR Market Update

Key Highlight

• Softer US inflation and employment figures this week have reduced expectations for a Federal Reserve rate hike, with markets now looking towards December at the earliest.

• Sterling has remained resilient following UK Q2 GDP growth of 0.4%, exactly matching expectations. With no fresh UK data today, the Bank of England remains comfortably on hold.

• US retail sales at 13:30 BST is today's key release and could determine whether recent dollar weakness continues into next week.

Market Recap

Sterling traded broadly sideways after UK GDP confirmed 0.4% quarter on quarter growth in Q2. The result was fully in line with expectations and provided little fresh direction for the pound.

The dollar also remained relatively stable despite further evidence that US monetary policy may remain restrictive for longer. Softer inflation on Wednesday, followed by weaker than expected PPI, has led markets to push back expectations for the next Federal Reserve rate hike to December at the earliest.

The Japanese yen strengthened marginally as reports suggested Prime Minister Takaichi's government supports a near term Bank of Japan rate increase. However, gains remained limited while markets await clearer confirmation from Takaichi or BoJ Governor Ueda.

Sterling was the strongest major currency mover against the New Zealand dollar, with GBP/NZD rising 0.20%. Two-year New Zealand inflation expectations fell for the first time in three quarters, increasing expectations of further Reserve Bank of New Zealand rate cuts.

Market Overview

Euro vs Dollar

Near term: 50% conviction, range bound.

EUR/USD remains within a relatively narrow 0.50% range. Eurozone GDP is expected to confirm the initial 0.4% estimate, so the release is unlikely to provide a major catalyst. US retail sales at 13:30 BST is the more important event. A weak reading could push EUR/USD towards the August high, while stronger sales could pull the pair back towards the lower end of its recent range.

Low implied volatility continues to keep hedging costs relatively attractive.

Medium term: 60% conviction, euro strength.

The broader trend remains supportive of the euro. Expectations of a September ECB rate increase to 2.50%, compared with a Federal Reserve that is expected to remain on hold, provide an important interest rate advantage.

Concerns surrounding the US fiscal deficit and a gradual shift towards European assets also remain structural headwinds for the dollar. The main risk to this view would be a renewed acceleration in US inflation that forces the Federal Reserve towards more aggressive tightening.

What this means: A move towards resistance would cost dollar buyers approximately $2,900 more per €250,000, while a move towards support would cost approximately $4,000 more.

Pound vs Dollar

Near term: 55% conviction, mildly higher.

GBP/USD continues to trade towards the upper end of its recent range. The Bank of England's decision to remain on hold, combined with expectations that the Federal Reserve is unlikely to raise rates before December, currently gives sterling a modest advantage.

Today's US retail sales figures are the main test. A weaker result could see GBP/USD challenge the July high, while a stronger figure could bring the pair back towards the August low.

Medium term: 50% conviction, range bound.

The medium term outlook remains mixed. Further sterling gains would largely depend on continued dollar weakness as the interest rate gap between the US and other major economies narrows.

However, sterling remains vulnerable to weaker UK growth. Treasury modelling reportedly puts UK growth at just 0.9% in 2026 and 0.3% in 2027, compared with consensus forecasts of approximately 1.0% and 1.1%. If disruption around the Strait of Hormuz persists, UK inflation could peak near 4.3%, creating an additional risk for the pound.

What this means: A move towards resistance would make dollar purchases approximately £593 cheaper per £250,000, while a move towards support would make them approximately £1,443 more expensive.

Pound vs Euro

Near term: 55% conviction, mildly higher.

Sterling remains close to the top of its August range. Stable UK economic data and continued pressure on the euro from elevated energy costs are supporting the pound.

A sustained break above the recent August high could open the way towards July's high. However, failure to break higher could see GBP/EUR drift back towards its recent low. With no significant UK data today, eurozone GDP is likely to provide the main potential catalyst.

Medium term: 30% conviction, euro strength.

The longer term bias favours the euro. Expectations that the ECB could continue raising rates towards 2.75% would reduce the interest rate gap between the UK and Eurozone and provide support for the single currency.

Eurozone growth forecasts have also been revised higher to 0.8% for 2026, which could provide further support if the improvement is sustained. The main counterweight remains energy prices, as another significant increase would have a greater impact on the Eurozone and could restrict further euro gains.

What this means: A move towards resistance would make euro purchases approximately £354 cheaper per £250,000, while a move towards support would make them approximately £1,125 more expensive.

Bottom Line

The dollar heads into the final session of the week under pressure following a run of softer US economic data. US retail sales at 13:30 BST is therefore particularly important, as a weak reading could reinforce expectations of delayed Federal Reserve action, while a stronger result could challenge the recent dollar weakness.

With no major UK releases scheduled today, sterling's direction is likely to be driven primarily by the US data and wider movements in the dollar.

14th August  2026

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