US retail sales rose by 0.6% in August, beating the 0.2% forecast. The previous month’s growth was updated from 0.5% to 0.6%. When we exclude auto sales, retail sales increased by 0.7%, higher than the expected 0.4%. Last month’s figures were also revised from 0.3% to 0.4%. The retail sales control group showed a similar rise of 0.7%, again above the 0.4% estimate. These strong numbers might boost GDP estimates. As of September 11, the Atlanta Fed’s GDPNow forecast stands at 3.1%, with potential updates ahead. Retail sales might be benefiting from rising import prices. Notably, furniture and home furnishings increased by 5.2%, electronics and appliances rose by 3.7%, while clothing and accessories jumped by 8.3%.

FOMC Rate Decisions

The retail data is unlikely to heavily sway the Federal Open Market Committee (FOMC) decision. However, it could lead to discussions among dissenting members. Last month, 9 members supported the current policy, while 2 wanted a 25 basis point cut. Changes in Fed membership might influence future votes, with new rate expectations to be discussed in the remaining meetings of 2023 and looking ahead to 2026. This positive retail sales report indicates the economy is performing better than expected. For traders, this suggests we may see fewer aggressive interest rate cuts from the Federal Reserve. It might be wise to consider strategies that anticipate elevated rates, such as selling near-term calls on Secured Overnight Financing Rate (SOFR) futures. These sales figures, potentially boosted by higher import prices, reflect the persistent inflation we have dealt with this year. The latest Consumer Price Index for August 2025 remains at 3.1%, complicating the Fed’s ability to lower rates. This scenario implies that any forthcoming rate cuts will likely be limited and gradual.

Economic Outlook and Currency Impact

The next FOMC meeting is now a key focus point for market volatility. While strong growth is good for corporate earnings, a less accommodating Fed might pressure stock values. We could see more demand for VIX call options as protection against any hawkish surprises in the Fed’s updated rate forecasts. With the Atlanta Fed’s GDPNow forecast at 3.1% and possibly revised upward, our economic outlook looks much stronger. This growth potential, above 3%, contrasts with the modest 2.1% expansion we experienced in the second quarter of 2025. As a result, making deep recession bets, like buying far out-of-the-money puts on equity indices, seems less appealing. This solid US economic data makes the US dollar more attractive relative to other currencies. We should expect renewed strength in the dollar, especially against economies where central banks are likely to ease policy. Call options on the U.S. Dollar Index (DXY) could offer a simple way to capitalize on this trend. Create your live VT Markets account and start trading now.

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