1.4%! US retail data exceeded expectations. Why did the US dollar fall first and then rise?

Ihua Foreign Exchange APP News - The US retail sales data released on Wednesday (April 16) exceeded expectations, causing immediate market fluctuations. Retail sales monthly rate recorded 1.4%, the largest increase since January 2023, higher than market expectations of 1.3%, and far exceeding 0.2% in February. This strong data was driven mainly by a surge in car sales, with consumers rushing to buy vehicles before Trump’s tariff policy came into effect, but weak consumption of non-essentials exposed demand differentiation. Core retail sales (excluding automobiles, gasoline, building materials and food services) rose 0.4%, down from 0.6% expected, but still showed solid basic demand. The market responded quickly. Before the data was released, market sentiment was tense and affected by multiple factors. After the 1.4% retail sales data were released, the US dollar index fell in the short term due to its core retail sales being lower than expected, reflecting the market's concerns about uneven consumption structure. DXY quickly rebounded to 99.6884 after hitting 99.5563, indicating limited momentum for shorts. U.S. stock index retail sales data dragged down by tariff uncertainty add avatradescn.complexity to the Fed's policy outlook. Strong headline data show economic resilience, reducing the need for immediate rate cuts. Consumer spending grew by 4.0% annually in the fourth quarter of 2024, which is the key defense line to resist recession. But soft core retail sales and sluggish service consumption predict slowdown in the first quarter of 2025, consistent with economists' forecast of a growth rate below 0.5%. The current interest rate range of the Federal Reserve is 4.25%-4.5%. Faced with the highest inflation expectations since 1981 and price pressure caused by tariffs, it is expected to maintain the existing policies unchanged. A avatradescn.company account avatradescn.commented: "Retail sales exceeded expectations in March,But weak core data and weak service consumption mean that the Fed will continue to wait and see, and the impact of tariffs on inflation in the second quarter is crucial. "This view reflects the general expectation that the Fed will prioritize inflation over stimulating growth. The data also intensifies market concerns about tariffs. Although the surge in automobile sales reflects consumers' active response to tariffs, the contraction of non-essential consumption indicates that households are prepared for price increases and economic uncertainty. A well-known institution pointed out that the stock market sell-off caused by tariffs is weakening the confidence of high-income families, and the shrinking portfolio may further suppress their consumption capacity. This dynamic increases the risk of stagflation - the stagnation of economic growth coupled with continued inflation, especially when tariff policies disrupt the supply chain. Retail sentiment is avatradescn.complex, and one user said: "Retail sales seem strong, but it is just a car boom before the tariffs, and actual consumption is falling, which feels like a sign of recession. "This is in sharp contrast to the optimistic attitude of some retail investors to expect a consumption-driven rebound before the release. Institutional and retail investors responded differently. Institutional investors quickly placed the data in a macro context to analyze. A macro account pointed out: "1.4% retail sales growth is a short-term phenomenon driven by tariffs, which is non-trend." Core retail 0.4% and weak service consumption warnings are cautious, and the Federal Reserve will not act rashly. "Another agency avatradescn.commented on GDP: "Core retail sales directly affect GDP accounting, and this data supports weak growth in the first quarter, but tariff noise makes the outlook unclear. "These views show a data-driven calm perspective, focusing on the interaction between consumption, policy and external shocks. Retail investors' reactions are more emotionalavatradescn.com and are significantly differentiated. Some retail investors cheered for the data, and one user wrote: "Retail sales 1.4% exceeded expectations! There is no problem with the economy, there is a chance to buy at the bottom! "But many people also expressed concerns about the weak core data and the weak consumption of non-essential products. A retail investor avatradescn.complained: "It's all about car sales. My supermarket bills rose by 20%. I don't dare to spend money indiscriminately. How can this be strong? "This divergence reflects the polarization of retail investors: holding stocks may look to the future, and March retail sales data outline a avatradescn.complex picture for the second quarter of 2025 economic trend. In the short term, the tariff-driven car sales boom is difficult to sustain, and rising vehicle prices may suppress demand. Although core retail sales remain stable, declines in consumer confidence and federal layoffs may drag down consumption momentum. The Fed's next move will depend on April CPI and PPI data to judge Whether the tariff cuts intensify inflationary pressure. The market currently expects the probability of keeping interest rates unchanged in the FOMC meeting in May is 70%, and the probability of a 25 basis point cut in July is only 20%. In the long run, the interaction between tariffs and consumer spending will determine the economic trajectory. If stock market fluctuations lead to lower consumption by high-income households, as some analysts worry, consumer spending may stall and drag down GDP growth. On the contrary, the resilience of demand for essential goods may support retail sales, but the price is high inflation. For traders, volatility is the main theme. Stock markets are threatened by tariff uncertainty, and the dollar trend depends on whether the Fed tightens its policies due to inflationary pressure. On the X platform, institutions recommend staying flexible, one account said: "Retail sales data has bought time for the Fed, but tariff consequences and inflation are real tests and need to adapt." In short, the March retail sales data showed the dual appearance of consumer resilience and pressure. Although the 1.4% headline growth was driven by pre-tariff car purchases, weaker spending on non-essentials and services exposed concerns. The market digests data with limited volatility, but has a far-reaching impact on Fed policy and economic growth. Under tariffs and inflationary pressures, traders need to carefully weigh short-term opportunities and long-term risks, and consumer spending remains a key fulcrum of the U.S. economy.

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