EUR/USD drops below 1.1600 as US Dollar strengthens on robust Retail Sales data

The Euro (EUR) extended its decline against the US Dollar on Thursday, weighed down by a stronger Greenback and upbeat US economic data. Robust Retail Sales and a solid Philly Fed Manufacturing reading reinforced the view that the Federal Reserve (Fed) may keep interest rates higher for longer, boosting demand for the US Dollar and weighing on the common currency.

EUR/USD remains on the defensive near the key psychological level of 1.1600 during the American trading session. At the time of writing, the pair is hovering around 1.1586, down roughly 0.50% on the day as sellers remain in control following a string of strong US data releases.

A fresh batch of US economic data on Thursday painted a picture of ongoing strength in consumer activity and a steady labor market. June Retail Sales rose 0.6% MoM, beating expectations of a 0.1% gain and rebounding from May’s sharp decline of -0.9%. Core Retail Sales, which exclude autos and gas, also climbed 0.5%, improving from a 0.2% increase the previous month.

Initial Jobless Claims for the week came in at 221,000, lower than the 235,000 forecast, signaling continued tightness in the labor market. But the biggest surprise came from the Philadelphia Fed Manufacturing Index, which jumped to 15.9 in July from -4.0 in June, far above expectations of -1. The stronger-than-expected data reinforced expectations that the Federal Reserve could keep interest rates elevated for longer, boosting the U.S. Dollar and weighing on major peers, such as the Euro.

On the Eurozone front, inflation data released earlier in the day offered little relief for the Euro. Headline Consumer Price Index (CPI) rose 2.0% YoY in June, in line with expectations and the European Central Bank’s (ECB) target. Core CPI, which excludes food and energy, also held steady at 2.3% YoY. While services inflation remained elevated, continued softness in energy prices helped cap broader price pressures. The data reaffirmed expectations that the ECB is likely to hold rates steady at its meeting next week, especially as inflation is showing signs of stabilizing.

Meanwhile, markets remain focused on trade developments, with optimism persisting that a deal between the US and the EU could be reached before August 1st. The EU’s trade chief, Maroš Šefčovič, is currently in Washington for urgent talks with U.S. officials, but uncertainty remains high. The prospect of a tariff flare-up has added another layer of risk for the Euro, especially as investors weigh the potential economic fallout for the bloc’s export-heavy sectors.