The USD gained as much as 0.4% yesterday after strong advance retail sales and falling jobless claims data, closing the day with a 0.25% increase. Headline retail sales surged 1%, the most since January 2023, and were broad-based: 10 of 13 categories increased, and the control group used in GDP calculations marked its third straight monthly advance.

The Fed’s Musalem said he views inflation as returning to the Fed’s 2% target and that the labor market no longer poses an inflation risk. "From my perspective, the risk to both sides of the mandate seems more balanced ... the time may be nearing when an adjustment to moderately restrictive policy may be appropriate as we approach future meetings," he noted.

Speaking this morning, the Fed’s Goolsbee declined to say whether he would favor cutting interest rates at the Fed’s next meeting in September but reiterated that there isn’t a need to tighten in an economy that’s not overheating. US Treasury yields are lower, and the USD is down 0.25% today, on track for its third weekly decline.

EUR/USD fell 0.35% yesterday but recovered 0.2% today, trading approximately 0.65% higher than this time last week. A light data slate this week for the eurozone region precedes key inflation data on Tuesday, with manufacturing and services flash PMI readings on Thursday. The ECB’s negotiated wages indicator for Q2 and the meeting minutes from the last ECB rate decision are also released next Thursday.

GBP/USD rose 0.2% yesterday and gained as much as 0.45% today after a slight headline retail sales miss in July included an upward revision to the prior month’s reading. The pair is trading about 1.2% higher than this time last week, rebounding from four straight weekly drops to post the best G10 performance this week. Swap odds currently imply a one-third probability of a BOE rate cut at its September 19th decision.

USD/CAD closed 0.1% higher yesterday, giving up most of those gains so far today with the pair on pace to end the week essentially unchanged. Price action has been confined to a 0.45% range over the past week. Manufacturing sales data fell 2.1% in June, less than the median forecast of -2.6%. Key inflation data arrives Tuesday followed by retail sales next Friday.

USD/MXN has fallen over 2.4% from this week’s pair highs on Monday and is outperforming its emerging market peers as investors move back into carry trades after yesterday’s strong US retail sales beat. Bank of Mexico Deputy Governor Mejia said in an interview that the prolonged slide in core inflation and recent economic softness were among the factors supporting the decision to cut rates last week.