Dollar Firm Ahead of Retail Sales Data

August 17, 2021
  • July retail sales data will be the highlight; the U.S. manufacturing sector remains strong; add Rosengren to the growing list of Fed officials calling for imminent tapering; CLP is testing its weakest levels for the year on the back of negative political headlines
  • Details of ECB asset purchases for the week ending August 13 will be reported; U.K. reported firm labor market data
  • It’s worth pulling out the old "Risk" board game for a grim reminder of how vexing Afghanistan can be; RBA minutes confirmed its upbeat outlook; New Zealand will go into a three-day lockdown after a single Covid case was detected in Auckland; the news comes just a day ahead of the RBNZ decision

The dollar continues to recover from Friday’s sell-off. DXY is up two straight days and has retraced nearly half of that day’s drop. We believe markets overreacted to the consumer confidence data Friday and we look for the dollar to continue clawing back some of its recent losses. The euro remains heavy after running into resistance near $1.18, while sterling is playing some catch-up now and trading at the lowest level since July 27 near $1.3785. A break below $1.3730 would set up a test of the July 20 low near $1.3570. USD/JPY remains heavy after it broke support near 109.50 yesterday, which set ups a test of the July 4 low near 108.70. We remain positive on the dollar, as stronger U.S. data and hawkish Fed comments are likely to reassert themselves in the market this week.


July retail sales data will be the highlight. Headline sales are expected at -0.3% m/m vs. 0.6% in June, while sales ex-autos are expected at 0.2% m/m vs. 1.3% in June. The so-called control group used for GDP calculations is expected at -0.2% m/m vs. 1.1% in June. It’s worth noting that the absolute levels of most retail sales categories were at or near record highs in June. As such, we would not be too concerned about a modest drop in July as strong jobs growth should continue to support consumption in H2. However, markets will be extremely sensitive to any larger than expected drop in sales given the massive drop in consumer confidence this month.

The U.S. manufacturing sector remains strong. July IP will be reported and is expected to rise 0.5% m/m vs. 0.4% in June. Yesterday, the regional Fed manufacturing surveys for August started to roll out. Empire survey came in at 18.3 vs. 28.5 expected and 43.0 in July. Virtually all the survey and PMI readings are at or near record highs. Some moderation is to be expected but that does not mean the economy is slowing sharply. Philly Fed follows up on Thursday and is expected at 24.0 vs. 21.9 in July. June business inventories (0.8% m/m expected) will also be reported today.

Add Rosengren to the growing list of Fed officials calling for imminent tapering. He noted that “If we get another strong labor market report, I think I would be supportive of announcing in September that we are ready to start the taper program. I think we are likely to meet by the September meeting the criteria that we laid out. The obvious question mark remains whether problems with the delta variant start to slow down the labor market. So far we haven’t seen that.” For those keeping score at home, Rosengren joins Bullard, Waller, Kaplan, George, and Clarida in the more hawkish camp. Since the July 27-28 FOMC meeting, more and more Fed officials are tilting hawkish and so the minutes tomorrow will be of great interest ahead of the Jackson Hole Symposium next week. Powell and Kashkari speak today, followed by Kaplan Friday. We believe the ranks of the hawks will continue to grow, raising the odds of another hawkish shift in the September Dot Plots to show median lift-off expectations moving up to 2022.

The Chilean peso is testing its weakest levels for the year on the back of negative political headlines. The latest polls show leftist presidential candidate Gabriel Boric up 3 ppts to 24%, now ahead of centrist candidate Sebastian Sichel with 22% (down 2 ppts). There’s still a long ways to go and a lot can change before the November election, but these figure just increase our conviction that it’s best to stay on the sidelines in Chilean assets. The same applies to other major South American countries such as Brazil and Peru – we just do not see enough upside potential to take on the growing political risks. The Chilean peso has been on a steady depreciating trend since May, taking USD/CLP to just below 790.


Details of ECB asset purchases for the week ending August 13 will be reported. Yesterday net purchases were reported at EUR17.2 bln vs. EUR16.4 bln for the week ending August 6 and EUR10.7 bln for the week ending July 30. Redemptions and gross purchases will be reported today. The ECB has been aiming for net weekly purchases of around EUR20 bln since the accelerated pace began in March, but there have been several outliers on both sides. The bank is expected to discuss changes to its asset purchases at the next meeting September 9 but a consensus may not be reached until the December meeting. Otherwise, the eurozone has a quiet week as Q2 GDP and employment data will be reported Tuesday.

U.K. reported firm labor market data. Unemployment was expected to remain steady at 4.8% in the three months through June but instead fell a tick to 4.7%. Employment rose 95k and average weekly earnings jumped 8.8% over the same period. July is showing some signs of leveling out, however, as unemployment claims fell only -7.8k vs. a revised -136.1k (was -114.8k) in June. There will be increased scrutiny of the labor market as it approaches the potential cliff edge at the end of the furlough program in September. Last week’s data were mixed. Industrial and construction output unexpectedly contracted in June, while GDP and services grew slightly stronger than expected.


It’s worth pulling out the old "Risk" board game for a grim reminder of how vexing Afghanistan can be. Remember how hard it was to hold all of Asia for anything more than a turn or two? The global repercussions are too big to even begin discussing here. On a smaller scale, three Asian countries in particular are watching events unfold with nervousness: China, India, and Pakistan. China is worried about potential Taliban support for its Uighurs in Xinjiang. India is worried about Taliban support for Pakistan in Kashmir. And while it looks like Pakistan comes out the winner in all this, we'd point out that the Pakistani Taliban (TTP) has a stated aim of overthrowing the government there.

Reserve Bank of Australia minutes confirmed its upbeat outlook. The bank delivered a hawkish surprise at last week’s meeting as it goes ahead with its planned tapering next month. Many thought the bank would delay tapering due to the economic fallout of the current lockdowns, but the minutes show that the bank views the impact as temporary and manageable. The bank considered delaying tapering but noted that “The board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery. Experience to date had been that, once virus outbreaks were contained, the economy bounced back quickly.” Next policy meeting is September 7 and no change is expected then as the bank begins its scheduled tapering, with a review planned for mod-November.

New Zealand Prime Minister Ardern put the nation into a three-day lockdown after a single Covid case was detected in Auckland. This is its first nationwide lockdown since the initial pandemic response more than a year ago. Under the so-called Alert Level 4, all schools, public venues, and most businesses will close and people are urged to wear masks if they need to go out. Only shops providing essential services such as groceries, gasoline, and health products will be allowed to stay open. NZD was the big mover overnight in the G7 space, depreciating 1% against USD. The news also led to a 10-bps decline in the country’s 10-year yield to 1.74%.

The news comes just a day ahead of the RBNZ decision. The bank is widely expected to begin the tightening cycle with a 25 bp hike to 0.50%. However, some analysts have switched their call to no change due to the lockdown. Like the RBA, we believe such a delay would be overreacting and so we expect the RBNZ to hike tomorrow. Of note, Bloomberg’s WIRP shows market expectations have shifted to only 65% odds of a hike from over 100% at the start of the week. WIRP also shows only two hikes are now fully priced in by year-end vs. nearly three previously.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction