Forex News

• Retail Sales in the US picked up momentum in May.
• The US Dollar Index advances marginally to the 99.70 region.

Retail Sales in the United States increased to $763.7 billion in May, the US Census Bureau reported on Wednesday. This print followed the 0.5% expansion recorded in the previous month and came in above market expectation (+0.5%). On a yearly basis, Retail Sales were up 6.9% during this period.

"Retail trade sales were up 1.0 percent (±0.4 percent) from April 2026, and up 7.5 percent (±0.5 percent) from last year. Nonstore retailers were up 12.2 percent (±1.8 percent) from last year, while food services and drinking places were up 2.7 percent (±1.8 percent) from May 2025," the press release read.

What do US Retail Sales figures mean for the US Dollar?

The Greenback trades with decent gains in the wake of the publication of Retail Sales data, with the US Dollar Index (DXY) returning to the low 99.60-99.70 band and reversing two consecutive daily declines.

The move higher in the US Dollar (USD) follows widespread caution in global markets ahead of the FOMC event due later in the day.

• EUR/USD trims gains and returns below 1.1600 with all eyes on the Fed. 
• The US central bank is widely expected to leave rates on hold.
• Warsh's press conference and the bank's economic and rate hike projections will be carefully analyzed.

The Euro (EUR) posts moderate losses against the US Dollar (USD) on Wednesday, giving away some of the ground gained over the last few days, with markets showing a cautious mood ahead of the US Federal Reserve’s (Fed) decision. The EUR/USD pair has pulled back to levels below 1.1600 but, so far, remains trading within Tuesday’s range.

On Wednesday, all eyes are on the outcome of the Federal Market Open Committee (FOMC) meeting, the first one under the leadership of Chairman Kevin Warsh. Warsh has been appointed by US President Donald Trump to cut interest rates, with inflation well above the bank’s target and the bank’s independence in question.

Warsh might skip the "Dot Plot"

The Fed is widely expected to leave its monetary policy unchanged, and therefore, the focus will be on Warsh’s press release to spot differences with its predecessor, Jerome Powell, and the economic and interest rate projections. Market rumours suggest that Warsh might not participate in the “Dot Plot”.

Before that, US Retail Sales data for May is expected to show figures broadly in line with those released in the previous month. The impact on the US Dollar likely to be minimal.

Meanwhile, markets are awaiting further details from the US-Iran trade deal while rivals ramp up their rhetoric. Iran has vowed a “hard response” if Israel keeps attacking Lebanon, and US President Donald Trump said at the G7 summit that he is ready to go back to “dropping bombs” if he does not like the agreement.

In the Eurozone, May’s final Harmonized Index of Consumer Prices (HICP) confirmed preliminary figures of a 3.2% year-on-year (YoY) growth and a 0.1% uptick on the month. The core HICP, on the other hand, has been revised higher to a 2.6% YoY growth, its highest reading in more than a year, from previous estimations of a 2.5% growth.

Societe Generale’s Kit Juckes notes that recent G10 policy moves, including a BOJ hike, have not produced dramatic FX shifts. He argues that a dovish Fed outcome would favour short USD/JPY positions. The strategy reflects expectations that relative policy dynamics and potential Fed caution could weigh on USD/JPY over the coming weeks.

Dovish Fed scenario supports Yen

"Short USD/JPY and short USD/SEK should deliver results in the event of a dovish outcome; further EUR weakness would follow on from any hawkish surprises."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Societe Generale’s Sam Cartwright notes that UK Headline CPI stayed at 2.8% year-on-year in May, undershooting both Bloomberg consensus and the BoE’s April MPR projection, while core inflation edged up to 2.6%. He highlights that stronger services and fuel inflation were counterbalanced by weaker food and goods prices, with specific base effects and airfare dynamics driving services.

Services and fuel drive May CPI mix

"Headline CPI remained at 2.8% yoy in May, 0.2pp below the Bloomberg median estimate and 0.5pp below the BoE’s estimate in the April MPR, while core inflation rose by 0.1pp to 2.6% yoy."

"Stronger services inflation was offset by downside surprises in food and goods"

"Services inflation rose by 0.5pp to to 3.7% yoy, 0.2pp below the BoE’s April MPR estimate."

"Within services, a positive base effect, stemming from the ONS correction to last year’s overestimated rise in Vehicle Excise Duty, added 0.25pp to services."

"In addition, the Easter-related weakness in April airfares unwound, contributing a further 0.15pp to services inflation, while transport by sea added just under 0.1pp."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

OCBC’s Sim Moh Siong notes FX markets are in a holding pattern as traders await the FOMC, with Oil’s decline easing inflation pressures but seen as having limited further downside. The Fed is expected to keep rates unchanged and drop its easing bias, while the Dollar lacks a clear bearish catalyst, leading OCBC to stay neutral and favour FX cross trades.

Fed hold keeps Dollar directionless

"Waiting on the Fed: FX is in a holding pattern ahead of the FOMC. This persists even as oil continues to drift lower before the expected Friday signing of the US-Iran memorandum. Brent has slipped below USD80/bbl, undercutting many analysts’ year-end forecasts."

"Further downside in oil may be capped. Even if the Strait of Hormuz reopens, normalisation will take time. Mine clearance, insurance reinstatement, restarting shut-in production and precautionary stockpiling should slow the pace of any further decline."

"The Fed is set to keep rates unchanged for a fourth meeting. We expect the FOMC to drop its easing bias with unanimous support. Chair Warsh will likely acknowledge sticky inflation and a firmer labour market but avoid signalling a clear policy tilt."

"With oil prices easing, the Fed can afford to stay patient if the trend holds."

"The case for sustained USD weakness remains weak. We stay neutral on the dollar and prefer relative value in FX crosses."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)