USD outlook: Wells Fargo expects retail sales boost from auto rebound

Wells Fargo projects US retail sales to surge +0.6% month-over-month for July, driven primarily by a rebound in auto sales and elevated prices. The bank notes that excluding autos, sales gains would be approximately half, at around +0.3%, reflecting underlying consumer spending fatigue. Recent data shows consumers pulling back on discretionary purchases as economic pressures mount. The anticipated strong headline retail sales figure could provide temporary support for the US dollar, particularly if it beats market expectations. However, the weakness in core retail sales (ex-autos) highlights concerning trends in consumer behavior that may limit sustained USD strength. For forex traders, the divergence between headline and core figures suggests potential volatility around the release, with initial USD strength possibly fading if markets focus on weakening consumer fundamentals. The report underscores the importance of looking beyond headline numbers when assessing the dollar's medium-term trajectory.