Retail sales in the United States rose 0.1% monthly in May to $703.1 billion. This reading followed a 0.2% decline recorded in April and came in slightly below the market expectation of a 0.2% increase. Total sales for the March 2024 through May 2024 period were up 2.9% from the same period a year ago. Retail trade sales increased by 0.2% from April 2024 and were up 2.0% compared to last year.

EUR/USD is higher on the day after a weaker-than-expected CPI print. A lower-than-expected rise in retail sales data was anticipated to put substantial pressure on the US Dollar as it boosts investors' confidence that the progress in the disinflation process will continue. Currently, the US Dollar Index, which tracks the Greenback’s value against six major currencies, has surrendered its entire intraday gains and fallen to nearly 105.30. On Monday, Philadelphia Fed Bank President Patrick Harker supported keeping rates at their current levels to maintain downward pressure on inflation in various sectors such as housing and services, notably auto insurance and repairs. When asked about the interest rate outlook, Harker indicated one cut in the benchmark rate this year if his economic forecast plays out, Reuters reported. GBP/USD has ticked higher to start the US session.

GBP/USD benefited from the selling pressure surrounding the USD in the second half of the day on Monday and into Tuesday. If policymakers leave the door open to a rate reduction in September, the USD could struggle to find demand, helping GBP/USD hold its ground. In this scenario, risk flows are likely to continue to drive market action and put additional weight on the USD's shoulders. Conversely, investors could adopt a cautious stance if officials express a willingness to wait until the end of the year before considering a rate cut.

USD/CAD is slightly higher on the day. On the Loonie front, rising expectations that the Bank of Canada (BoC) will cut interest rates further in the July meeting have kept the Canadian Dollar on the back foot. The BoC delivered a rate cut of 25 basis points in its June policy meeting, as expected. The BoC’s preferred inflation measure, the core Consumer Price Index (CPI), which excludes various volatile items, has fallen below the 2% target, and the unemployment rate has risen to 6.2%, prompting the BoC to start unwinding the restrictive interest rate framework.