Real Retail Sales Rose 0.4% in May, Beating Forecasts

The spending strength complicates the near-term rate path. Markets had priced in a September cut before the release. After the data, the odds ticked lower. The 2-year Treasury yield rose 5 basis points to 4.27% immediately after the print. A consumer base that keeps spending reduces urgency for easing.

The dollar edged up. The DXY gained 0.2% in morning trading. EUR/USD slipped below 1.0800. The reaction was contained, with the focus shifting to the Fed's rate decision and dot plot later Wednesday.

Equities held onto earlier gains. The S&P 500 futures were up 0.3%. If yields continue grinding higher, growth stocks face a tighter valuation squeeze. Gold slipped 0.3%, pressured by the firmer dollar and rising real yields.

The forward look.

TD expects the worst of gas price increases to be in the rear view. Pump prices are down roughly 50 cents in June on U.S.-Iran peace progress, giving households some reprieve. The labor market is showing signs of strengthening. Household wealth continues to get support from rising equity valuations.

TD's baseline: consumer spending holds around a 2% pace through year-end.

The Fed statement and dot plot arrive at 2 p.m. ET. The median projection for the fed funds rate in 2026 and 2027 will shape the dollar's next move. Any upward revision would reinforce the dollar and pressure rate-sensitive sectors.

For traders watching the forex market analysis, the real question is whether the consumer resilience is a lagging indicator – supported by savings and credit that are running thin – or a genuine signal that the economy can absorb higher rates longer. The next payrolls and CPI prints will start to answer that.