fundamental alert

US Dollar Slips as Retail Sales Contract for 5th Straight Month in November

Friday, 12 December 2008 12:32:49 GMT  |  Terri Belkas, Currency Strategist

The US dollar has pulled back against the euro as US consumption contracted for the fifth straight month in November, highlighting the extent of the recession in the US.  Indeed, the Commerce Department reported that advance retail sales fell 1.8 percent during the month, and while spending is anticipated to remain lackluster through year-end and 2009, there is a notable factor we must take into account that is skewing this report: prices. This particular index is not adjusted for inflation, and because gas costs have fallen precipitously in recent months, the Commerce Department's reading shows a 14.7 percent plunge in gasoline station sales.

However, looking at the rest of the report, electronics, furniture, clothing, sporting goods, and general merchandise sales all rose slightly during November. That said, this is likely a result of heavy discounting and promotions by retailers during the holiday shopping season, which should extend through December. Once we get into the New Year, though, traders should watch these components as they will provide a good gauge as to the status of the consumer and how long the recession will last.

Overall, today's news still leaves the odds in favor of an aggressive rate cut by the Federal Reserve next week, as fed fund futures are pricing in at least a 50bp cut.

EUR/USD (Intraday Chart)

Source: Bloomberg

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