Dollar falls on surprise drop in US retail sales

On Friday, the U.S. dollar experienced a decline as retail sales in the country unexpectedly dropped in July. This unexpected data sent the euro and the British pound to multi-month highs, as traders considered the implications for Federal Reserve policy. The retail sales, which mainly consist of goods and are not adjusted for inflation, fell by 0.6 percent in July, after an unrevised 0.2 percent increase in June.

Economists polled by Reuters had anticipated a 0.1 percent increase. Juan Perez, director of trading at Monex USA in Washington, remarked that "we are clearly having signs of poor consumption," indicating an economic slowdown in the U.S. Weaker-than-expected consumer and producer price inflation data this week has already softened expectations of a Federal Reserve rate hike at its September meeting.

Currently, traders estimate only a 31 percent probability of a September increase, with a 69 percent chance of a rate increase by December. The dollar index, which gauges the greenback against a basket of currencies, including the yen and the euro, fell by 0.25 percent to 99.67. The euro climbed 0.32 percent to $1.1564, reaching its highest level since June 17, while the British pound strengthened by 0.33 percent to $1.353, its highest point since May 12.

Traders are also monitoring the U.S. conflict with Iran and attempts to reopen the Strait of Hormuz. Crude oil prices increased on Friday amid renewed attacks on tankers and tensions between the U.S. administration and Iran. The Japanese yen strengthened by 0.08 percent to 159.37 per dollar, signaling a weekly decline of approximately 1 percent as the effects of recent U.S. and Japanese interventions continued to wane.