The US Dollar (USD) experienced broad-based weakness against major currencies, including the Canadian Dollar (CAD), New Zealand Dollar (NZD), Japanese Yen (JPY), and British Pound (GBP), as a result of softer-than-expected US economic data and diminishing expectations for further Federal Reserve rate hikes [1][2][3][4]. US Retail Sales fell by 0.6% month-over-month in July, following a 0.2% rise in June and missing the market consensus of 0.1% growth. On an annual basis, Retail Sales rose 5.0% in July compared to 6.8% in the previous month [1][3][4]. This data, combined with recent CPI and PPI releases pointing to cooling inflation, led traders to reduce their bets on a Fed rate hike, with the CME FedWatch tool showing a 33.1% probability for a hike next month, down from 44% last week [1][3].
The Canadian Dollar advanced for the third consecutive day, with USD/CAD trading around 1.3870, supported by higher oil prices. West Texas Intermediate (WTI) crude traded at $81.80 per barrel, buoyed by Middle East tensions and supply disruptions. Commerzbank analysts estimate Gulf region production losses at 4.3 million barrels per day, with the IEA projecting a Q3 supply deficit of 1.8 million barrels per day, one million more than previously expected [1].
The New Zealand Dollar climbed above 0.5900, its highest since June 3, as the Reserve Bank of New Zealand's hawkish stance and market pricing for up to 75bps of tightening over the next year supported the currency. Brown Brothers Harriman strategists noted that above-target inflation and a favorable domestic growth outlook argue for additional RBNZ rate hikes. However, ongoing geopolitical risks and volatile oil prices could limit further USD losses [2].
The Japanese Yen strengthened, with USD/JPY trading around 159.10, after Japan's Q2 GDP grew 0.3% quarter-over-quarter and 1.1% annualized, both below expectations. Despite the weaker GDP, the Yen's modest gains provided reassurance to policymakers concerned about its previous downward trajectory. The softer US data further pressured the USD/JPY pair [3].
The British Pound traded near a three-month high, with GBP/USD climbing above the mid-1.3500s. The Pound was supported by a 0.3% expansion in UK GDP for June and a 0.4% rise in Q2, which analysts said positions the UK for the strongest G7 growth in H1 2026. MUFG/BTMU analysts highlighted sterling's resilience, attributing its strength to the UK's economic performance amid the US-Iran conflict and energy price shocks. However, upcoming UK jobs and inflation data, as well as the FOMC Minutes, are expected to influence further moves [4].
Geopolitical tensions, particularly the US-Iran standoff and the closure of the Strait of Hormuz, continued to support oil prices and maintain a risk premium in the markets. US officials signaled the possibility of new economic sanctions against Iran, with measures expected as soon as this week [1][2][4].
CONCLUSION
Softer US economic data and reduced expectations for Federal Reserve rate hikes have led to broad-based USD weakness, benefiting major currencies such as the CAD, NZD, JPY, and GBP. Elevated oil prices and ongoing geopolitical tensions further supported commodity-linked and risk-sensitive currencies. Market participants are now focused on upcoming macroeconomic releases and central bank communications for further direction.