US Retail Sales preview: another solid reading to keep the greenback running

• US Retail Sales are seen posting another month of solid growth in July.
• Consumer spending strong despite mounting uncertainty and rising inflationary pressures.  

US Retail Sales will be out this Wednesday, and market's forecasts point for another month of solid growth, although below the 1.3% advance posted last May. Back in June, sales were up by 0.5% MoM and by 6.6% when compared to a year earlier, now forecasted to have advanced by 0.3% in July. The reading ex-autos, excluding the volatile component, are expected to have increased by 0.4% monthly basis, after a similar advance in the previous month.  The closely watched Retail Sales Control Group, another core reading that excludes auto, gasoline and construction materials, remained flat in June and is now expected to be up 0.4% in July.

Ahead of the key release, the  National Retail Federation raised its US retail sales forecast for this year, now seen around 4.5% from a previous estimate between 3.8% and 4.4%, citing higher wages, gains in disposable income and a strong job market that have boosted consumer spending. Such forecast suggests that the outcome may surprise to the upside.

Retail Sales are directly linked to consumer spending and confidence in the economic future, and hence, stronger sales are linked to mounting inflationary pressures. A strong outcome usually results in a higher dollar, and while the US currency is way overbought, the rally could continue, as much of its recent strength, is not just due to a run to safety, but also because the Fed has once again taken the lead, now the only central bank left in the path of normalization.

Consumer activity is also correlated to US GDP, so the indicator will be the first hint of Q3 growth. US Gross Domestic  Product increased 4.1% in the second quarter, the fastest rate of quarterly growth in almost four years. Market players are anticipating a 5.0% growth in Q3, not only because of US President Trump wish but also because so says the Atlanta Fed's preliminary forecast.

But things are never that easy. Increased uncertainty about the effects of the ongoing trade war on the economy, may see consumers become cautious in the upcoming months. Consumers may also hesitate amid persistently higher inflation. According to the latest data available, core inflation spiked to 2.4% YoY in July, the largest annual increase in almost a decade, while wages' growth has remained in check. For now, however, a  strong figure should indicate that economic progress remains solid, therefore backing additional dollar's gains, although political headers will keep adding noise to market moves.